Henry Waxman is pressing forward on the question of whether Blackwater improperly evades payments of taxes in respect of its security guards. See this earlier posting on ataxingmatter.us and this recent AP article by Anne Flaherty, Democrat Requests Blackwater Inquiry, Yahoo.com, Mar. 10, 2008 and Karen DeYoung, Democrat Calls for Blackwater Probe, Alleges Tax Fraud, Boston Globe, Mar. 11, 2008. (Thanks to OMBWatch for posting this information.)
Waxman has written to the IRS, Small Business Administration, and the Labor Department requesting an inquiry into whether Blackwater has inappropriately designated its employees as independent contractors and thereby evaded US payroll taxes, received SBA contracts that it would otherwise not be entitled to, or avoided compliance with labor standards imposed on federal contractors in respect of their employees. [Blackwater won't respond to even initial requests for information from the Labor Department, claiming it doesn't have to comply because its guards aren't employees. See memorandum, below.] The letters include a memorandum on the issues distributed to members of the House Committee on Oversight and Government Reform. indicating that Blackwater's claims that the guards it utilizes are independent contractors are "dubious." See this link (for links to letters) and
- Letter to IRS
- Letter to Labor Department
- Letter to Small Business Administration
- Memorandum on Blackwater Employment Practices
The memorandum makes the following statement about Blackwater's defense of its position on whether it has employees or not.
In all three instances, Blackwater has asserted in official communications that its security guards are independent contractors because the company does not exercise sufflrcient control over their activities in Iraq or Afghanistan. Blackwater has claimed in offrcial communications that its security guards are "in no way directly supervised or controlled by Blackwater"; that they "do not report to any of the Blackwater entities regarding their work in the field"; and that they "do not report to Blackwater regarding their operations in country." Blackwater has also claimed that it "plays no role in the development or planning of the contractors' security missions" and "has little if any knowledge regarding the location or activities of these independent contractors." According to Blackwater, its "only real involvement is to pay the independent contractors."
All of these claims appear to be false."
Instead, based on the committee's review of some 20,000 documents and interviews with Blackwater guards, the memorandum concludes that Blackwater exercises "tight control" over its guards, in spite of Blackwater's assertion that all it does is provide payments to them. Blackwater's own lawyer, in defending a civil suit regarding the deaths of four Blackwater guards in Fallujah, claimed that there was no grounds for recovery other than worker's compensation, because the guards were employees "as a matter of law" under the Defense Base Act. Id. Other companies with security guards under contract with the Defense Department treat their guards as employees. Id.
The memo details information from Blackwater's control over guards in the field in Iraq--guards are fired if they "broach initiatives with the client" without going through Blackwater managers, make complaints to Blackwater headquarters rather than through Blackwater supervisors, or fail to follow orders from Blackwater supervisors, among other things. Id.
And of course, in the case of one guard who contested his status as an independent contractor, the IRS ruled that he was an employee. See earlier ataxingmatter posting. Blackwater claims that this ruling is meaningless or, even if the guards are employees, there is no reason to penalize Blackwater, because it relied on advice from its accountant several years ago. Id. Blackwater claimed reliance, but refused to give a copy of the advice to the committee, claiming attorney-client privilege. (Of course, this must not be attorney-client privilege, if an accounting firm, but rather the less strong "practitioner-client" privilege under Code 7525.) Blackwater required the security guard who received the favorable ruling to sign a nondisclosure agreement--agreeing not to publicize the ruling to public officials, of all things--when it settled with him. It appears that Blackwater was hoping to escape notice and continue to receive crony rewards in Iraq, New Orleans, and elsewhere.
Email contact with a Blackwater guard who contacted me after that earlier ataxingmatter posting suggests that many Blackwater security guards do not agree with Blackwater's treatment of them as independent contractors.
Blackwater is trying to have the best of all worlds in all its dealings with the government. It has received about $144 million of contracts through the federal programs for small businesses, yet it is one of the world's largest private security businesses. It claims the SBA's determination on whether its guards are employees is relevant for the IRS determination, yet it relied on the fact that it did not withhold payroll taxes as evidence in its submission to the SBA that its guards were not actually employees! Id. It claims that the guards are independent contractors, yet when those guards apparently murdered a number of innocent civilians in a Baghdad square, it claimed that it could properly enforce appropriate actions and that it fires guards that make poor decisions.
Think about this: more than 163,000 private security contractors are in Iraq, and that is more than the number of US troops. See Democrat Calls for Blackwater Probe, Alleges Tax Fraud. So we have not only executed terribly expensive, wasteful, budget-busting, deficit-increasing, domestic-programs stultifying, and ultimately more harmful than helpful, unilateral, preemptive war against a country that we are now occupying, but we have done it in reliance on, in substantial part, a privatized military that has been privileged by our very government contracts (many issued in non-bid processes) to be held unaccountable--either to the occupied country or to the country that is paying that organization, and with employees who are treated as expendable commodities by the private "security" group that hires--oops, contracts with--them.
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