Waxman Accuses Blackwater of Millions in Tax Fraud, Cover-UpIt just gets worse and worse for Blackwater’s relationship with the House Oversight and Government Reform Committee.
Today, committee chairman Henry Waxman (D-CA) accused Blackwater CEO Erik Prince of hiding “tens of millions of dollars, if not more” in Social Security, Medicare and retirement taxes by classifying its security guards in Iraq as independent contractors. In a letter (pdf) to Prince, Waxman also called a financial settlement reached with one such former independent contractor “deplorable.” The settlement required that the ex-guard not disclose a March 2007 IRS ruling that Blackwater’s tax records were out of whack; and the guard was specifically prevented from disclosing that to any “politician” or “public official.”
Either last year or early this year (it’s not clear from the letter), a former Blackwater guard sought to determine whether the tax code designates him a Blackwater employee, which would entitle him to compensation for the money he spent paying his own taxes in 2005. The company received the IRS arbitration (pdf) in March: the services rendered by the ex-guard for the company in Iraq qualified him as an employee. That would explain why the non-Blackwater private guards in Iraq on the same State Department contract, working for DynCorp and Triple Canopy, work as full-time employees of their companies, which take care of their tax liability.
In testimony earlier this month to the committee, Blackwater CEO Erik Prince described the company’s decision to classify Blackwater’s guards as independent contractors as a “model that works,” preferred by the guards for providing flexibility. He did not mention the IRS ruling in his sworn testimony, despite questions from Washington, D.C. Delegate Eleanor Holmes Norton into Blackwater’s hiring practices.
The IRS ruling concerned one particular case. But Waxman said its logic “would appear to apply to your entire workforce in Iraq and Afghanistan.” Extrapolating from the one case, the Democratic committee staff calculated that Blackwater avoided paying $15.5 million in Social Security and Medicare taxes, $15.8 million in federal income tax withholding, and $500,000 in unemployment taxes from the start of its last contract, in May 2006, through the receipt of the IRS ruling in March. It’s an “unanswered question,” Waxman wrote, whether Blackwater has continued to avoid paying these taxes after the IRS ruling. If so, then Blackwater would have evaded an additional $18 million through September.
That’s not all. Waxman took special note of a non-disclosure clause in the settlement Blackwater ultimately reached with the ex-guard on June 6. It prevented the ex-guard from discussing the case with any “politician” or “public official.” The chairman sees it as evidence of a cover-up, and called it “abhorrent on its face.”
Nondisclosure agreements that prohibit individuals from reporting illegal conduct to public officials have been widely held to be unenforceable as against public policy. It is deplorable that a company that depends on federal tax dollars for 90 percent of its business would even contemplate forbidding an employee to report corporate wrongdoing to Congress and federal law enforcement officials.
Waxman found the “timing” of the non-disclosure agreement “particularly suspect.” It was signed by Blackwater’s general counsel, Andrew Howell, who the previous month had received requests for information on the company from the committee as part of its initial investigation into security contracting in Iraq. Howell’s non-cooperation led to the committee issuing subpoenas for the relevant documents in August. It was during this period, Waxman noted, that the company reached the non-disclosure agreement with the ex-guard.
An e-mail request for comment from Blackwater spokeswoman Anne Tyrrell was not immediately returned.
Update: Here’s Tyrrell’s reply.
