Democrat calls for Blackwater probe, alleges tax fraud

Boston.com (2008-03-11) Karen Deyoung

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Waxman: Firm also violates labor rules

By Karen De Young, Washington Post | March 11, 2008

WASHINGTON - House Oversight Committee Chairman Henry Waxman expanded his effort yesterday to investigate private security contractor Blackwater Worldwide, calling for a wide-ranging federal inquiry into the company's employment practices.

In letters to the Internal Revenue Service, the Small Business Administration, and the Labor Department, Waxman, Democrat of California, questioned Blackwater's classification of its workers as independent contractors instead of employees. That designation, which the government has questioned in the past, allowed the company to obtain $144 million in contracts set aside for small businesses and avoid paying as much as $50 million in withholding taxes under State Department contracts, he said.

A Blackwater spokeswoman called Waxman's allegations completely without merit and said the company regrets his "decision to publicly air misleading information." An IRS spokesman declined to comment.

The allegations were made public as a team of Justice Department and FBI investigators completed a two-week visit to Baghdad, where they interviewed additional witnesses in connection with a Sept. 16 episode in which Blackwater security personnel guarding US diplomats killed 17 civilians at a Baghdad traffic circle. Although a grand jury was convened late last year in the case, federal prosecutors have not determined whether the contractors can be prosecuted under US law. They are immune from Iraqi prosecution under a decree promulgated by the former US occupation government in Iraq.

The shootings prompted criticism of the use of private security contractors by both the State and Defense departments. As a result, the State Department promised to increase supervision of their activities, and the two departments developed comprehensive guidelines for them.

In Senate testimony late last month, administration officials said that 163,590 contractor personnel were working in Iraq under Defense contracts, slightly more than the number of US troops there. Of those, 6,467 are armed security personnel, about 1,500 of them American citizens. State Department security contractors total 1,518, about half of them Americans. The officials said that many of the rest are British and South African.

An additional 32,520 Defense contractor personnel are working in Afghanistan.

Blackwater, one of three US companies that provide security for US diplomats and official civilians in Iraq, has received nearly $1.25 billion in federal contracts from State and other agencies since 2000.

According to Waxman, Blackwater has received contracts set aside for companies with fewer than 1,500 employees after self-certifying its own status. The addition of nearly 1,000 personnel in Iraq would put it over the Small Business Administration limit, but Blackwater has insisted that they are independent contractors it pays to work for the US government. That designation allows the firm to avoid withholding federal income tax from what company records have indicated is $1,222 per day the guards are paid.

Waxman also charged that Blackwater was violating Labor Department affirmative action regulations by withholding its employment records.

In its statement, Blackwater said that its classification of its personnel is accurate and that it has "always been forthcoming about this aspect of its business with its customer, the US government."