KBR’s Cayman Island Scam

I recommend you read the whole article detailing KBR’s Cayman Island scam. A lot of people have linked to the lede, explaining how KBR created a shell company in Cayman Islands so it didn’t have to pay social security and unemployment benefits for workers hired through the shell company. But there are several details of note that appear further down in the story.

For example, KBR would like you to believe that it set up this shell company to help you, Mr. and Ms. American Taxpayer. It saves you money, it claims, by making these workers pay their own social security and go without unemployment insurance.

It’s bogus on its face. But deep in the article, an anonymous former KBR exec reveals that it’s actually using the shell company so it can compete against its rivals Fluor and Bechtel.

A former Halliburton executive who was in a senior position at the company in the early 1990s said construction companies that avoid taxes by setting up foreign subsidiaries have obvious advantages in bidding for military contracts.

Payroll taxes can be a significant cost, he said, speaking on the condition of anonymity. "If you are bidding against [rival construction firms] Fluor and Bechtel, it might give you a competitive advantage."

So you, Mr. and Ms. American Taxpayer, can pay one fee to Fluor for drivers in Iraq who will will have some safety net when they return to the US. Or you can pay a slightly smaller fee–not enough to make a difference on the cost of the war, but enough such that KBR can beat out Fluor on pricing–and have that same driver return from Iraq with no unemployment benefits.

And KBR nets the difference.

KBR bills the Service Employers workers as "direct labor costs," and charges almost the same amount for them as for direct hires.

It also won’t surprise you that this shell company consists of a $1,000 registered agent in Cayman Island–the company itself is really located in Dubai.

In fact, the address on file at the Registry of Companies in the Cayman Islands leads to a nondescript building in the Grand Cayman business district that houses Trident Trust, one of the Caymans’ largest offshore registered agents. Trident Trust collects $1,000 a year to forward mail and serve as KBR’s representative on the island.

The real managers of Service Employers International work out of KBR’s office in Dubai. KBR and Halliburton, which also moved to Dubai, severed ties last year.

And finally, the cruel loophole. If these guys get poisoned or hurt, KBR still gets to subject to the kangaroo court arbitration process that they’ve also put Jamie Leigh Jones through.

But there is one circumstance in which KBR does claim the workers as its own: when it comes to receiving the legal immunity extended to employers working in Iraq.

In one previously unreported case, a group of Service Employers International workers accused KBR of knowingly exposing them to cancer-causing chemicals at an Iraqi water treatment plant. Under the Defense Base Act of 1941, a federal workers compensation law, employers working with the military have immunity in most cases from such employee lawsuits.

So when KBR lawyers argued that the workers were KBR employees, lawyers for the men objected; the case remains in arbitration.

The Iraq War continues to be a legalized way for Cheney’s cronies (and former employers, in this case) to screw taxpayers, their employees, and get rich in the process. No wonder they don’t want to end the gravy train.

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21 replies
  1. LS says:

    Wow, Cheney is just one big major source of mass corruption activities…why is he still walking around free? None of this would be possible without him. He is the catalyst for this 21st Century Iraqi Horror Show…

    Unbelievable.

  2. doctorbloor says:

    The only surprise here is the Fluor and Bechtel haven’t put the same scheme into place.

    • emptywheel says:

      BoGlo was unable to get DynCorp, the company that lost the particular contract in question to KBR, to comment.

      I presumed that meant they’re working on it.

  3. Ishmael says:

    Arguments about its protectionist nature aside, Congress or the Unitary Executive could end this sort of thing tomorrow, if it wanted to of course, by enacting something similar to the Jones Act imposing American content standards on domestic Unites States shipping on any company that wanted to bid on American defence contracting in Iraq. Essentially, KBR is doing in the Caymans what flag-of-convenience ship operators have been doing forever, with the result being that sailors are often faced with deplorable safety, living and working conditions on foreign-flagged ships (not merely because they are foreign of course). I suspect that requirements similar to the Jones Act regarding eligibility for federal contracting are the only reason Bechtel and Fluor are already into the same type of scheme, although I say this as a WAG.

  4. Slothrop says:

    It’s important to note that this has been going on since 2004 at least, when KBR was a division of Halliburton and that Vice President Cheney held stock options given to him while he was Halliburton’s CEO.

    No one ever really makes the case that the Iraq war puts money directly in Cheney’s wallet, but that is the case.

    He probably needs that man-sized safe in his office to store all of the blood money.

  5. Bushie says:

    Brought to you by your caring Congress under Newt, Tom, Trent and Neo Liberal capitalists everywhere. Capitalism uber alles!

  6. masaccio says:

    This Cayman Island problem is a serious one. The description EW gives of bidding against the people who pay FICA and withholding and other benefits is the whole basis of outsourcing. In Nashville, we privatized garbage pickup, so now we pay the workers about the same, pay the company a profit, and come out cheaper. The workers are driven harder by the private company, but have fewer benefits and so on.

  7. earlofhuntingdon says:

    Like outsourcing, this story discloses the tip of a large iceberg. In the last fifteen years, aggressive tax “planning” ideas like this have gone from netting you five to ten in the pen to a making you partner in a tax firm. This sort of advice, and much more, is pandered aggressively and yields enormous fees, virtually based on a percentage of the gross.

    Worse, the current crop of CFO’s and CEO’s, and their chief internal and external advisers, have made it to “flag rank” having been accustomed to little else. Again like outsourcing.

    Running an economy solely on unalloyed, unregulated, legally- and financially-immune capitalism is like drinking only distilled water. Rather than hydrate you, it leaches from you what you intend to hydrate.

    But then Bush doesn’t really advocate unalloyed capitalism. He advocates corporate-fare. Weening big businesses – many of which are now critical to collecting our taxes and running our legislature and military – from Bush-style corporate-fare will be heady and politically violent stuff. Let’s be prepared, and keep focused on what we want instead.

  8. sojourner says:

    DynCorp International, along with several other contractors, was awarded a piece of the LOGCAP IV contract last year. It was apparently put out for bid after it was disclosed that KBR had gotten it through no bidding. Surprisingly, though, KBR continues to perform all the work. I wonder why that is?

  9. RockPaperScizzors says:

    Gee, I’m really surprised….especially a company that our honorable Vice-Pirate Cheney has ties too. Tell me it ain’t so.
    Imagine if Angela Merkel was in charge of routing out these flea-infested rat holes tax havens and the scoundrels businessmen TAX CHEATS allowed to enjoy the luxury of living in the USA, and the benefits of a civilized society. I believe we are headed down the road of exposing these pirates as Germany is presently doing with Liechtenstein.

    SPIEGEL INTERVIEW WITH DEUTSCHE BANK CEO JOSEF ACKERMANN
    ‘We’re not Barbarians’
    Deutsche Bank CEO Josef Ackermann speaks to SPIEGEL about the public’s growing mistrust of the business community, Germany’s massive tax evasion scandal in Liechtenstein, executive fat cat salaries and the causes and consequences of the current financial crisis.
    http://www.spiegel.de/international/

    The US government is between a rock and a hard place as the economy collapses, bank collapses, record trade deficits, and dollar devaluation. The US Treasury is broke and they need the money to keep the gov’t doors open.

  10. readerOfTeaLeaves says:

    ‘Globalization’ was intended to free capital from any national regulatory constraints. Looked like it worked.

    Too bad about the unintended consequences…

  11. kspena says:

    This misuse of labor isn’t just a cheney goal; remember that bush/cheney tried to import (slave) labor to rebuild New Orleans… The unions got that turned around after a nasty fight.

  12. BooRadley says:

    OfT, but EDS out of Texas has carved out a very profitable bait and switch Medicaid niche for themselves. I suspect through the Texas mafia, they got Federal Medicaid to certify their off-the-shelf system. That certification is critical to getting states to lay-off all their Medicaid IT resources, because EDS promises (the bait) to do everything. In most state contracts EDS gets a piece of every transaction, in addition to receiving significant development costs for their off-the-shelf system. The state figures out the “bait and switch,” when EDS can’t shoe horn their off-the-shelf system into the state’s legacy system. But without their own IT staff to fall back, on the state has no choice but to just keep paying EDS more, while EDS keeps missing delivery dates. Finally, I think most of the actual software development is being done at EDS “off-shore” sites in India.

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