Henry Waxman has written a letter to Erik Prince, the chair of the Blackwater company of mercenaries that has made huge profits out of the wars in Iraq and Afghanistan. See also the committee's website, here. Prince testified in the House on October 2 about Blackwater's activities, related to the concern that the mercenaries provided by Blackwater are essentially unaccountable, either to the Iraq government or the US government, when they do something wrong. (For example, Iraq has accused the guards of unnecessarily killing at least 17 innocent people with indiscriminate and unprovoked gunfire in a busy square.)
Waxman had written a letter to Prince on October 19 to ask for additional information about Blackwater's ability to gain lucrative contracts in 2003 and 2004. Prince initially claimed at the hearing that the contracts were competitively bid, but it turns out that they were not--Blackwater was a sole-source provider for the services. Waxman asked on oct. 19 for detailed information about Blackwater's contracts, costs and profits. Waxman also requested more information about incidents in which Blackwater pays compensation to Iraqis as a result of Blackwater actions.
The October 22 letter is much more directly focused on the question of whether Blackwater has attempted to evade taxes. Unlike the two other major military contractors that provide security services in Iraq, Blackwater treats its security guards as independent contractors, thus avoiding withholding for wage taxes (Social Security, Medicare, Unemployment) and for federal income taxes. At the Oct. 2 hearing, Prince had answered a question about treating guards as independent contractors by asserting that it was a "model that works" and that the guards like the "flexbility" of that approach.
But, Waxman notes, it turns out that isn't quite the case. A guard in Afghanistan questioned his status as an independent contractor, and the IRS ruled that he should have been treated as an employee. Yet Blackwater would not satisfy its obligations until the guard signed a nondisclosure agreement that prevented the guard from information any politicians or public officials about the independent contractor claim. The only purpose of the nondisclosure agreement, in other words, appears to have been to keep Congress uninformed of Blackwater's likely tax evasion in its treatment of its employees as contractors. Waxman responds with appropriate disgust.
"It is deplorable that a company that depends on federal tax dollars for over 90% of its business would even contemplate forbidding an employee to report corporate wrongdoing to Congress and federal law enforcement offrcials."
Further, Waxman notes, guards that work for Blackwater are subject to Blackwater's extensive training, wear Blackwater-provided uniforms, use Blackwater-provided firearms, eat-sleep-work according to the schedule and in the places that Blackwater instructs. It is hard to see how they would not be employees under the analysis that the tax administration has provided, which focuses on whether the person is subject to the employer's will in what is to be done and how it is to be done. The IRS in its March 30 ruling in fact concluded that the guard who requested a ruling was an employee and not an independent contractor. The ruling warned Blackwater that the logic of the ruling might apply to others that the firm treated as independent contractors, and that failure to comply with the reporting and withholding obligation could have serious consequences.
Waxman's letter provides a calculation prepared by his staff regarding the amount of taxes Blackwater may have avoided from May 2006 to March 2007 under one contract with the government: "$15.5 million in Social Security and Medicare taxes, $15.8 million in federal income tax withholding, and $500,000 in unemployment taxes." Id. (footnotes omitted). Waxman calls for a number of disclosures from Blackwater about these matters.
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