A Liability on the GOP Balance Sheet?
Halliburton Probe Is Growing Worry for Bush, Hill Republicans
By Mike Allen and James V. Grimaldi
Washington Post Staff Writers
Saturday, July 20, 2002; Page A01
Rep. Nancy L. Johnson (R-Conn.) power-walked to the back of a Hartford hotel atrium earlier this week to tell television cameras how thrilled she was that Vice President Cheney would be arriving any minute to raise $120,000 for her reelection race.
But instead of being asked about her campaign or the visit, Johnson was peppered with questions about Cheney's tenure as chief executive of Halliburton Co. and the Securities and Exchange Commission's investigation of accounting changes he oversaw. Johnson, insisting that the growing debate over corporate responsibility is "not just about any one person," wheeled and rushed to the front of the room to await Cheney's motorcade, reporters calling after her about the SEC.
As Cheney travels the country to raise money for Republican candidates, local news coverage has begun to focus on the SEC investigation and Democrats have begun making an issue of Cheney's lucrative stewardship of Halliburton. The result is a new vulnerability for President Bush as he struggles to persuade markets and investors that his administration is committed to prosecuting corporate fraud. Bush was asked twice about Halliburton during a news conference on Wednesday.
House Republicans in tight campaigns are increasingly worried that Democrats will succeed in pinning corporate excesses on them, GOP aides say, and Cheney has become the focus of that concern.
Cheney has made no statement about Halliburton's accounting or the SEC investigation, and his counselor, Mary Matalin, said he has no plans to. "The vice president is not remotely focused on this stale Washington politics," she said. "He's focused on his job."
"Cheney's silence is deafening," a senior House Republican aide said. "If there's been one thing that should have been learned from the Clinton era, it was that these things have to be dealt with immediately, forthrightly and completely, and failure to do so gives the appearance that there really is something there. It only intensifies the political agony for all of us."
The controversy comes from a decision made by Halliburton, a Dallas-based oil services and construction firm, in 1998, when Cheney was chairman and chief executive. Halliburton began using an accounting technique that resulted in some uncollected debts being counted as revenue. That made Halliburton's revenue look larger than it would have with conventional accounting, resulting in a better bottom line.
Halliburton said the debts, caused by cost overruns on construction projects, were counted as revenue when "collection is deemed to be probable." A company spokeswoman said Cheney was aware Halliburton was using the new method, which was not disclosed to regulators and investors for more than a year after it was first used.
Lawsuits by investors say the accounting method improperly boosted revenue by $534 million over the past four years -- which the company said is only a small part of its revenue.
Several independent accountants said the procedure is unlikely to be found by the SEC to be improper or illegal. Investigators at the Fort Worth district office of the SEC are checking, however, to be sure the practice was not used to cover other questionable accounting. "If the SEC finds out they did a theoretically correct thing, but then manipulated that to achieve their results, they will skin their [rear]," said Roman Weil, a University of Chicago accounting professor.
Cheney has not been contacted by the SEC, his staff said. He has, however, turned to the Washington law firm Williams & Connolly, according to attorneys associated with the Halliburton case. Williams & Connolly is the blue-chip Beltway firm that has represented the Clintons.
Democrats have recently raised many questions about a Harken Energy Corp. stock sale Bush made in 1990 that prompted an SEC investigation, which was closed without charges being filed. Cheney's situation is potentially more damaging to the White House because the investigation is just beginning.
James A. Thurber, American University's director of the Center for Congressional and Presidential Studies, said the issue "could undermine people's trust in Cheney and make it harder for the administration to move ahead with its own agenda."
White House officials realize that Halliburton questions will be with them for some time and have settled on a two-pronged strategy for dealing with them. The first is to paint them as purely political, driven in part by Democrats' presidential ambitions. When asked about the possibility that Senate Democrats will hold hearings on Halliburton, White House press secretary Ari Fleischer accused the president's opponents of engaging in "old-style Washington antics at a time when our nation is sick and tired of that."
The other strategy, used by Bush during the news conference, is to use any question about Harken or Halliburton as an opportunity to discuss Bush's economic plans. "That's not a distraction, that's an opportunity," a Bush aide said.
Ralph Reed, a political consultant and chairman of the Georgia Republican Party, said Cheney remains "other than the president, as strong a draw at the grass roots as exists in the party today." And White House officials say the Halliburton questions have done nothing to detract from Cheney's in-house effectiveness.
However, the controversy has made the always stealthy Cheney even tougher to spot. While he often stands at Bush's side for major announcements, he was nowhere to be found last week when Bush unveiled his corporate responsibility proposals. And Cheney recently took two unannounced trips on government business. He visited troops at Fort Bragg, N.C., last week, and on Wednesday he flew to Atlanta for a briefing on bioterrorism at the Centers for Disease Control and Prevention.
Cheney plans to spend most of August on vacation in Jackson, Wyo. For now, though, he continues to aggressively work the fundraising circuit despite the flak from Democrats. Yesterday, Cheney headlined his 44th money-raising event of the year.
Democratic strategists are urging their candidates to play up the Halliburton questions. "If you have senior citizens outside a Cheney event, demonstrating about corporate responsibility, that's most likely to get on the 6 o'clock news than if they're demonstrating about Social Security," said Jenny Backus, press secretary of the House Democratic campaign committee.
Before Cheney arrived in Pennsylvania on Thursday to campaign for state Sen. Jim Gerlach, the Republican nominee in the new 6th District, Democrats had already pounced. Dan Wofford, who is Gerlach's opponent and son of former U.S. senator Harris Wofford, set up a campaign event so he could draw attention to what he called the "swirling investigations of the troubled Halliburton Corporation."
Cheney plans to visit Iowa for fundraisers on July 29 and 30, including an event for Rep. Jim Leach (R-Iowa), who faces a tough reelection campaign after the redistricting of his longtime base. At least three labor groups are planning demonstrations outside Cheney's stops.
"Jim Leach hasn't learned what his mother taught him: You're judged by the friends you keep," said Marcia Nichols, Iowa legislative director of the American Federation of State, County and Municipal Employees.
During Cheney's stop in Connecticut on Monday, he waved as he took the stage, then read a 14-minute speech that included 90 seconds about corporate responsibility and 7 minutes about the war. He left without shaking hands or taking questions.
That night, coverage on Hartford television stations was dominated by discussion of Halliburton, with reporters calling Cheney "a lightning rod" and saying he "finds himself at the center of the corporate controversy."
Nancy L. Johnson's opponent, Rep. James H. Maloney (D-Conn.), called Cheney's trip "a net positive for her treasury and a net negative for the message of her campaign."
"She's embracing somebody who is under investigation," Maloney said.
© 2002 The Washington Post Company
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