Shock and Oil: Iraq's Billions & the White House Connection
Published on Sunday, January 14, 2006 by the _Independent_
(http://www.independent.co.uk/) / UK

by Stephen Foley
The American company appointed to advise the US government on the economic reconstruction of Iraq has paid hundreds of thousands of dollars into
Republican Party coffers and has admitted that its own finances are in chaos because of accounting errors and bad management.
BearingPoint is fighting to restore its reputation in the US after falling
more than a year behind in reporting its own financial results, prompting
legal actions from its creditors and shareholders.
According to the Center for Responsive Politics, BearingPoint employees gave
$117,000 (£60,000) to the 2000 and 2004 Bush election campaigns, more than
any other Iraq contractor. Other recipients include three prominent Congressmen on the House of Representatives' defence sub-committee, which oversees defence department contracts.
One of the biggest single contributors to BearingPoint's in-house political
fund was James Horner, who heads the company's emerging markets business
which is working in Iraq and Afghanistan. He donated $5,000 in August 2005.
The company's shares have collapsed to a third of their value when the firm
listed in 2001, and it faces being thrown out of the New York Stock Exchange
altogether. Despite annual revenues of $3.4bn, the company made a loss of
$722m in 2005. Those figures were released only last month, nine months late,
and the company has not yet been able to report any fully audited figures at
all for 2006.
Analysts in the US claim the reason is a culture of poor management controls
stretching back to before the company was carved out of KPMG, the global
accounting giant, at the start of the decade. A litany of failings included
invoices going astray, poorly trained accounting staff and a failure to work out
the tax implications of having so many employees working in foreign
countries.
The chaos is not the result of malfeasance, but is "embarrassing and
inexcusable" none the less, according to Harry You, a former computer company
finance chief brought in to head BearingPoint in 2005 after it fired its
long-standing previous chief executive, the former US army captain Randolph Blazer.
BearingPoint did not return calls asking for comment yesterday.
BearingPoint is being paid $240m for its work in Iraq, winning an initial
contract from the US Agency for International Development (USAid) within weeks
of the fall of Saddam Hussein in 2003. It was charged with supporting the
then Coalition Provisional Authority to introduce policies "which are designed
to create a competitive private sector". Its role is to examine laws,
regulations and institutions that regulate trade, commerce and investment,and to
advise ministries and the central bank.
Last week The Independent on Sunday revealed that a BearingPoint employee,
based in the US embassy in Baghdad, had been tasked with advising the Iraqi
Ministry of Oil on drawing up a new hydrocarbon law. The legislation, which is
due to be presented to Iraq's parliament within days, will give Western oil
companies a large slice of profits from the country's oil fields in exchange
for investing in new oil infrastructure.
BearingPoint's first task in Iraq in 2003 was to help to plan the
introduction of a new currency, and it was hoped that it would eventually organise
small loans to Iraqi entrepreneurs to stimulate a significant market economy. The
contract award was immediately criticised by public integrity watchdogs and
by the company's rivals, because BearingPoint advisers to USAid had a handin
drafting the requirements set out in the tender. It spent five months
helping USAid to write the job specifications and even sent some employeesto Iraq
to begin work before the contract was awarded, while its competitors had only
a week to read the specifications and submit their own bids after final
revisions were made.
USAid's independent inspector ruled that "BearingPoint's extensive
involvement in the development of the Iraq economic reform program creates
the
appearance of unfair competitive advantage in the contract award process".The
company said it was selected through a transparent and competitive bidding
process.
Across the world, BearingPoint has become, thanks to USAid funding, a part
of the US government's strategy of spreading free-market reforms to developing
countries and America's allies. Elsewhere in the Middle East it is advising
the government of Jordan on how to minimise the regulation of business and
reform its tax policies in order to attract foreign investment; in Egypt it is
advising on customs reform and respect for international companies' patents.
It has won more than $100m of business in Afghanistan since American troops
invaded in 2002, and has been helping to build a banking system, training
civil servants in the finance ministry and offering advice on economic policy.
Its economic reconstruction work grew out of early work in eastern Europe
after the fall of communism, and became a significant contributor to the
business after it won contracts in the former Yugoslavia following US intervention
there.
The company changed its name to BearingPoint from KPMG Consulting in 2002,
shortly after separating from its parent company. In the years since,
contracts with the US government have proved the highlight of the business, while its
work for private company clients has failed to live up to hopes. In part
because of its reliance on the US federal government - which accounts for about
30 per cent of revenues - BearingPoint has dramatically stepped up its
attempts to buy influence in Washington. Its contracts in Iraq and Afghanistan
coincide with a big increase in its lobbying efforts on Capitol Hill. In 2005,
the latest year for which figures have been collated, BearingPoint paid $1m to
lobbyists, equalling the record total it paid in 2003. That is five times its
average annual bill for lobbyists prior to the war in Iraq.
It also dramatically increased its political contributions in the run-up to
the midterm elections, distributing $120,000 to candidates and campaign
groups from its employee-sponsored political fund. That compares with $61,000 in
the 2004 elections.