30 False Fronts Won Contracts for Blackwater

New York Times (2010-09-03) JAMES RISEN and MARK MAZZETTI

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30 False Fronts Won Contracts for Blackwater

By JAMES RISEN and MARK MAZZETTI

Published: September 3, 2010

WASHINGTON — Blackwater Worldwide created a web of more than 30 shell companies or subsidiaries in part to obtain millions of dollars in American government contracts after the security company came under intense criticism for reckless conduct in Iraq, according to Congressional investigators and former Blackwater officials.

hile it is not clear how many of those businesses won contracts, at least three had deals with the United States military or the Central Intelligence Agency, according to former government and company officials. Since 2001, the intelligence agency has awarded up to $600 million in classified contracts to Blackwater and its affiliates, according to a United States government official.

The Senate Armed Services Committee this week released a chart that identified 31 affiliates of Blackwater, now known as Xe Services. The network was disclosed as part of a committee’s investigation into government contracting. The investigation revealed the lengths to which Blackwater went to continue winning contracts after Blackwater guards killed 17 Iraqi civilians in Baghdad in September 2007. That episode and other reports of abuses led to criminal and Congressional investigations, and cost the company its lucrative security contract with the State Department in Iraq.

The network of companies — which includes several businesses located in offshore tax havens — allowed Blackwater to obscure its involvement in government work from contracting officials or the public, and to assure a low profile for any of its classified activities, said former Blackwater officials, who, like the government officials, spoke only on condition of anonymity.

Senator Carl Levin, the Michigan Democrat who is chairman of the Armed Services Committee, said in a statement that it was worth “looking into why Blackwater would need to create the dozens of other names” and said he had requested that the Justice Department investigate whether Blackwater officers misled the government when using subsidiaries to solicit contracts.

The C.I.A.’s continuing relationship with the company, which recently was awarded a $100 million contract to provide security at agency bases in Afghanistan, has drawn harsh criticism from some members of Congress, who argue that the company’s tarnished record should preclude it from such work. At least two of the Blackwater-affiliated companies, XPG and Greystone, obtained secret contracts from the agency, according to interviews with a half dozen former Blackwater officials.

A C.I.A. spokesman, Paul Gimigliano, said that Xe’s current duties for the agency were to provide security for agency operatives. Contractors “do the tasks we ask them to do in strict accord with the law; they are supervised by C.I.A. staff officers; and they are held to the highest standards of conduct” he said. “As for Xe specifically, they help provide security in tough environments, an assignment at which their people have shown both skill and courage.”

Congress began to investigate the affiliated companies last year, after the shooting deaths of two Afghans by Blackwater security personnel working for a subsidiary named Paravant, which had obtained Pentagon contracts in Afghanistan. In a Senate hearing earlier this year, Army officials said that when they awarded the contract to Paravant for training of the Afghan Army, they had no idea that the business was part of Blackwater.

While Congressional investigators have identified other Blackwater-linked businesses, it was not the focus of their inquiry to determine how much money from government contracts flowed through the web of corporations, especially money earmarked for clandestine programs. The former company officials say that Greystone did extensive work for the intelligence community, though they did not describe the nature of the activities. The firm was incorporated in Barbados for tax purposes, but had executives who worked at Blackwater’s headquarters in North Carolina.

The former company officials say that Erik Prince, the business’s founder, was eager to find ways to continue to handle secret work after the 2007 shootings in Baghdad’s Nisour Square and set up a special office to handle classified work at his farm in Middleburg, Va.

Enrique Prado, a former top C.I.A. official who joined the contractor, worked closely with Mr. Prince to develop Blackwater’s clandestine abilities, according to several former officials. In an internal e-mail obtained by The New York Times, Mr. Prado claimed that he had created a Blackwater spy network that could be hired by the American government.

“We have a rapidly growing, worldwide network of folks that can do everything from surveillance to ground truth to disruption operations,” Mr. Prado wrote in the October 2007 message, in which he asked another Blackwater official whether the Drug Enforcement Administration might be interested in using the spy network. “These are all foreign nationals,” he added, “so deniability is built in and should be a big plus.”

It is not clear whether Mr. Prado’s secret spy service ever conducted any operations for the government. From 2004 to 2006, both Mr. Prado and Mr. Prince were involved in a C.I.A. program to hunt senior leaders of Al Qaeda that had been outsourced to Blackwater, though current and former American officials said that the assassination program did not carry out any operations. Company employees also loaded bombs and missiles onto Predator drones in Pakistan, work that was terminated last year by the C.I.A.

Both Mr. Prince and Mr. Prado declined to be interviewed for this article.

The company is facing a string of legal problems, including the indictment in April of five former Blackwater officials on weapons and obstruction charges, and civil suits stemming from the 2007 shootings in Iraq.

The business is up for sale by Mr. Prince, who colleagues say is embittered by the public criticism and scrutiny that Blackwater has faced. He has not been implicated in the criminal charges against his former subordinates, but he has recently moved his family to Abu Dhabi, where he hopes to focus on obtaining contracts from governments in Africa and the Middle East, according to colleagues and former company officials.

After awarding Blackwater the new security contract in June, the C.I.A. director, Leon E. Panetta, publicly defended the decision, saying Blackwater had “cleaned up its act.”

But Rep. Jan Schakowsky, an Illinois Democrat and a member of the House Intelligence Committee, said she could not understand why the intelligence community had been unwilling to cut ties to Blackwater. “I am continually and increasingly mystified by this relationship,” she said. “To engage with a company that is such a chronic, repeat offender, it’s reckless.”

It is unclear how much of Blackwater’s relationship with the C.I.A. will become public during the criminal proceedings in North Carolina because the Obama administration won a court order limiting the use of classified information. Among other things, company executives are accused of obtaining large numbers of AK-47s and M-4 automatic weapons, but arranging to make it appear as if they had been bought by the sheriff’s department in Camden County, N.C. Such purchases were legal only if made by law enforcement agencies.

But defense lawyers say they hope to argue that Blackwater had a classified contract with the C.I.A. and wanted at least some of the guns for weapons training for agency officers.