By Jeff Balke
By Aaron Reiss
By Angelica Leicht
By Dianna Wray
By Aaron Reiss
By Camilo Smith
By Craig Malisow
By Jeff Balke
For two years, supervisors at Houston-based Tex-Co International kept a file on a client that was simply marked "AL." AL was a great customer, with plenty of hard cash and a big appetite for drilling equipment. In a letter dated September 21, 1993, a local Tex-Co worker told the company's London affiliate that AL had agreed to buy one shipment of drilling materials for $142,220.65, paid in German marks and delivered to London.
Four months later, an ocean freighter pulled out of Charleston, South Carolina, the oil field equipment from Houston on board. Only now, the same equipment being sold through the London affiliate had a shipper's export declaration stating that the equipment was worth $27,201.
On March 29, 1994, the sales rep in London was feeling good about the business. The mysterious "AL," according to a letter written to one L. Emerson, was identified by its full name of Umm Al-Jawaby, which had confirmed that it would be handing over a payment of 240,352.69 deutsche marks worth $142,220.65 in U.S. currency -- not the declared value of $27,000 and change. And there was more money on the way. This business, wrote a London emissary, promised a "brighter future and strong relationship" in the three-way deal between Houston, London and Umm Al-Jawaby.
This was just one of several shipments made over a two-year period from 1993 to 1995. But there was a problem with the "strong relationship" they were developing: Umm Al-Jawaby is the chief purchasing arm of the Libyan government and its ruler, Colonel Muammar al-Qaddafi. And that equipment was bound for the rich oil fields in Libya's desert.
Customs agents here have been on Umm Al-Jawaby's trail for years in a cat-and-mouse game aimed at bottling up the Libyans' supply master and enforcing a hard-line trade embargo. A city where Emperor Oil has long ruled over the business community, Houston has been a natural source for the drills, bits and equipment Libya needs to keep its oil fields pumping. Tex-Co proved an early win for the feds, one of the first in a series of investigative scores. And over the past year, the trail has grown hotter as federal prosecutors have picked up the pace in leading local executives to a date with a federal judge. But even as small outfits get caught up in Customs' net, Houston's multinational companies have been among the biggest profiteers in Libya.
Construction giant Brown & Root, which built many of the city's most notable landmarks and is in the process of adding another, downtown's cavernous $250 million baseball stadium, is project manager, through its London office, of a $25 billion Libyan drilling project recently linked to a possible covert military scheme and Qaddafi's new chemical weapons plant. Other Houston-based multinationals openly sell equipment to the Libyans from foreign subsidiaries, operating beyond the reach of the U.S. Attorney's office in countries that value jobs over America's Libyan embargo.
Libya has managed a huge sanctions-busting covert operation, pushing immense public projects, often with the help of Houston-based companies, and frequently funneling equipment through European fronts. And they're doing it despite more than a decade of bitter, often explosive conflicts between the U.S. superpower and the Libyan colonel in his desert regime.
Dating back to the Reagan administration, U.S. officials have been pointing fingers -- and occasionally high-explosive missiles -- at the defiant, sunglasses-sporting Libyan colonel, placing him behind a string of terrorist attacks, from a nightclub bombing in West Germany to harboring the prime suspects in the downing of Pan Am flight 103 over Lockerbie, Scotland. And for 12 years, U.S. officials have taken a hard-line position on Libya, working to make Qaddafi an international pariah, blockading commercial shipments and keeping Libya away from just the kind of equipment Tex-Co was more than willing to provide.
Two years ago, President Clinton weighed into the fray, laying claim to his own hard line on terrorism by signing legislation that was intended to make it harder for European companies to do business in Libya and Iran. At the same time that Clinton and Congress were waging legislative combat, Assistant U.S. Attorney Richard Berry signed off on an agreement allowing Tex-Co to plead guilty to one count of "unauthorized export" to Libya in return for an agreement to act as an informant on other cases.
But the feds had much more on their plate than one little exporter like Tex-Co. Over the past three years, investigators from U.S. Customs have been working with the U.S. Attorney's office on at least a half-dozen cases involving Houston companies. Several, like the case of Tex-Co, involve shipments from Houston through intermediaries in Europe or the Bahamas.
In one of the biggest cases announced to date in the United States, Customs agents swooped down on a pair of Houston businessmen last spring -- Jerry Ford and Preston Engebretson of Thane-Coat -- seizing property Customs agents claimed was paid for with Libyan money and accusing them of operating an international shell game designed to circumvent trade sanctions. High-profile defense attorney Dick DeGuerin has been representing the two, who are accused of making more than 100 illegal shipments bound for Libya.
A few weeks ago, Walter Murtaugh, the former CEO of Sea Traders Line, agreed to a guilty plea on one of the counts in a federal indictment filed against him last fall. Soon after, federal prosecutors dropped their charges against Sea Traders, which Murtaugh had sold to new owners several months before his indictment. (The new owners initiated a housecleaning, and no further charges are pending against Sea Traders.)
Not all of Customs' actions are focused on executives, though. One crusty old wildcatter, Clarence Quincy Elliott, now living in Kingwood, agreed to do 100 hours of community service -- and turn state's evidence -- to atone for laboring illegally in the Libyan oil fields for 11 years, for a variety of oil companies.
In several cases, the feds are demanding, and getting, help in making cases against other local companies out to do business with the Libyans. And workers in the oil patch say that Houston has been a rich field for investigators patiently putting cases through the system, with more indictments on the way.
The stakes in this game of international intrigue are huge -- with billions of dollars in Libyan contracts up for grabs.
In addition to its usual hunger for equipment to operate its massive oil fields, Libya has been touting its $25 billion Great Man-Made River Project, consisting of hundreds of miles of tunnels, 13 feet wide, being bored a quarter-mile beneath the 100-degree-plus temperatures of the Saharan desert. Libyans bill this 14-year-old project as one of the world's most ambitious irrigation plans, touted in brochure-like prose as a historic effort to "make the desert bloom."
But a recent report in the New York Times cast a far more sinister shadow on the work in the desert. Times correspondent Raymond Bonner quoted several project engineers who fear the irrigation project is simply an elaborate cover for a military scheme to move Libyan troops to its sensitive borders -- an explosive issue in a region that has seen Libyan troops threaten regimes of two bordering nations.
The tunnels also bore right through Libya's Tarhuna Mountain, which U.S. intelligence officials reportedly believe is Colonel Qaddafi's construction site for an elaborate biological and chemical weapons plant. Engineers told the New York Times -- confidentially, as they fear assassination -- that almost none of the related work associated with an irrigation project is under way. Lately, though, the London Observer has cast doubt on the military aspects of the project, saying that far too much of the equipment inside the tunnels would prohibit any kind of military uses.
While the debate over its ultimate purpose goes on in intelligence circles, no one doubts the immense rewards that await any company that can get a piece of the River deal. Ironically, even as local businessmen face jail time, fines and some gut-wrenching legal defense fees, some of the largest companies in Houston concede they have enjoyed a long, lucrative and apparently legal relationship with Libya and the Great Man-Made River Project.
Brown & Root, the Houston-based subsidiary of global oil-field services giant Halliburton, transferred its work as project manager of the sprawling desert construction work from Houston to its London subsidiary, Brown & Root Ltd., after international sanctions took effect.
Baker Hughes's subsidiary in Belfast, Hughes Christensen, acknowledges that it has supplied parts and material for the Great Man-Made River Project. Company officials say their drill bits -- costing $20,000 apiece -- have been purchased by Dong Ah for the Libyan project.
And Dowell Schlumberger, an international wing of Schlumberger, has supplied construction equipment to the same $25 billion project through Germany.
Schlumberger's official statement on the matter is:"Schlumberger has foreign affiliates that operate within Libya. Each of these non-U.S. subsidiaries operates in full and total compliance with all U.S., European and other applicable sanctions and regulations. Operations relative to customers in Libya are managed out of the company's Cairo offices."
Their position is simple. So long as the foreign operations act independently, without any direction or involvement from U.S. executives, they're not in violation of U.S. law.
"You bet your sweet bippy," responded Baker Hughes's spokesman Art Downey from his Washington office, when asked if his company's involvement through Belfast is legal.
A Customs official in Washington, speaking on condition of anonymity, says that may not be true. American-based multinationals aren't exempt from the law, he says. They, like many European companies, have been essentially free to participate in the Great Man-Made River Project because officials in Europe refuse to cooperate with the Americans.
"Dope is bad everywhere," says the official, "but farm machinery isn't. The problem is getting the evidence outside the U.S., and we have no mechanism for getting it." That may change, though. The Customs official tells the Houston Press that there are several investigations of American multinationals currently under way. Some of those investigations include Houston-based companies, which he declined to name.
Asked if Baker Hughes was aware of a government probe, Downey sarcastically responded that it "wasn't worth his time" to find out. If there was a government probe, some people in the company would know of it and others wouldn't. Says Downey: "Why should I bother?"
And don't bother asking how much these contracts are worth, either.
The question draws a quick "we aren't saying" from Brown & Root's Ken Beedle in London. Brown & Root's parent company, Halliburton, is now run by Dick Cheney, who, after a career in the House, took over as George Bush's hawkish Secretary of Defense in 1989, three years after the Reagan administration got the ball rolling on the Libyan trade embargo.
Under Reagan, U.S. Navy and Air Force jets coordinated an air strike on the Libyan capital of Tripoli in a savage effort to kill the Libyan leader. Qaddafi's adopted daughter and more than a dozen others were killed in the air strike. The assault came just months after a terrorist bombing of a popular West German nightclub, which killed three people and left more than 200 others injured. That attack, said the Reagan administration, was inspired, supplied and supported by Qaddafi's government.
Cheney warned in one 1990 speech that the Soviet Union still maintained sophisticated weapons in the North African country.
These days, Cheney, now based in Halliburton's Dallas headquarters, has interests other than pounding Republican war drums, especially now that he's in charge of Halliburton's bottom line. Last fall, Cheney was in Houston on a new mission. In front of a dinner hosted by the Oil Industry International Exploration and Production Forum, Cheney lambasted U.S. trade sanctions. Without mentioning Libya specifically, Cheney criticized government embargoes, saying they created "friction" with America's allies. Cheney said there was a "failure at the federal level to recognize the strategic asset of the oil and gas business."
Not all of Halliburton's many subsidiaries immediately stopped doing business with Libya after sanctions were imposed. Two years ago, the company shelled out a record $3.8 million in fines after it admitted that Halliburton Geophysical Services in Houston -- which was later sold -- illegally shipped materials to Libya through two of Halliburton's subsidiaries in Italy and Germany, not just once, but on 68 separate occasions. One of those 68 shipments, made back in the late '80s, included a neutron pulse generator. Used in the oil business to detect cracks in pipes far beneath the earth's surface, neutron pulse generators can also be rigged, according to officials in the Commerce Department handling the case, to trigger nuclear weapons.
The case, and the government investigation around it, set off shock waves in Halliburton's Houston office. "All the officers of the company were told never to even say 'Libya,' " says one former executive. From then on, the "L" word, he says, was blacklisted from any corporate communication as paranoia over the federal investigation -- and rumors that government investigators were monitoring conversations -- ran rampant. Even today, the "L" word isn't a favorite subject of conversation. When a journalist mentions the "L" word in Houston, he gets pointed to Brown & Root Ltd. In London.
Not that prosecutors are any more forthcoming with the "L" word. While the U.S. Attorney's office hasn't been shy about calling press conferences and touting arrests and indictments in other cases, the feds these days have been curiously reticent about discussing the Libyan cases. Asked for an update on publicly filed cases, Assistant U.S. Attorney Berry just says, "Unfortunately, I can't." And Judy Turner, spokesperson for U.S. Customs, reserves a monosyllabic stance to not answering questions about the probe, though she confirms that it is continuing.
Free from American supervision, pending any action on Customs' supervision, the multinationals face little, if any, discouragement from their host countries. Congress's effort to toughen the sanctions on Libya over the past two years, advertised to the public as an attempt to pull back European companies, has had no apparent impact of any kind on the other side of the Atlantic. European countries have not only failed to adopt America's containment strategy, several have been anxiously competing to get any business they can.
Even long-standing Washington resolve has recently begun to show cracks in its rigid facade. Over a week ago, the Clinton administration stirred a hornet's nest of controversy when it said it wouldn't use the U.S. laws to sanction three companies -- France's Total, Russia's Gazprom and Malaysia's Petronas -- for their role in a $2 billion Iranian gas deal.
Eighteen senators banded together to call on the president to avoid any similar weakness when it comes to Libya. Said the senators: "We believe the State Department needs to make an unequivocal statement to ensure that its decision regarding Iran will not be perceived as a green light for companies to invest in the Libyan sector."
But most European companies not only see a green light, they're already trafficking on a glutted pipeline of trade with Libya. "We haven't demonized them [the Libyans] in quite the same way America has," says Paul Beaver, an analyst with the respected Jane's Defense Weekly in London. While the British bow occasionally to U.S. pressure on Libya, says Beaver, British companies enjoy close relations with the Libyans, while the French and Germans have been aggressively pursuing every possible trade opportunity.
Bottom line: America's commercial fight against Qaddafi will be waged on one front, and only on American soil. U.S. officials say the Europeans have been reluctant to prosecute any cases. But in spite of the active assistance of multinationals and European suppliers, the insatiable appetite for huge quantities of construction and drilling equipment has Libyan agents beating the doors of local companies.
Dong Ah, a Korean company, is chief supplier for the Great Man-Made River Project, and reportedly is under federal scrutiny for its buying efforts in Houston. Leaving Houston's multinationals to beaver away at liberty under the hot Libyan sun has one local company under the federal spotlight crying foul.
"They tried to do it and they wanted to do it legally," says Dick DeGuerin about his two clients, Jerry Ford and Preston Engebretson of Thane-Coat. "We were trying to do it the way Brown & Root and all the other big companies do it." DeGuerin vehemently protests that the United States can't have two sets of rules, and that anything Thane-Coat may have done or tried to do leaves them as innocent as anyone at Brown & Root.
Customs, though, says Thane-Coat's efforts to go through the Bahamas was nothing other than a sham, using shell companies to juggle the company's anticorrosives and hide the shipment's intended delivery to Libya's Great Man-Made River Project.
While criminal charges were still being reviewed, the feds moved in to punish Thane-Coat's two operators. A year ago, Ford and Engebretson were paid a visit by Customs Service agents. The agents seized a 38-foot custom sailboat, a vintage Jaguar, a 1994 Cadillac Seville and a bank account. Customs agents also laid claim to Engebretson's Houston house, which they say had been renovated with ill-gotten Libyan money, their business premises and adjoining riverfront lots in New Braunfels. Even more damaging, an administrative judge in the U.S. Commerce Department suspended the company's export license, a move that the company is fighting. As for criminal charges, the U.S. Attorney's office has said it wants to investigate before it determines whether or not it will be filing cases.
Now, more than 12 months later, DeGuerin says they're still fighting Commerce and are waiting to see what, if anything, the U.S. Attorney's office will do involving possible criminal charges currently under review.
Thane-Coat has been hit with some of the toughest penalties so far passed out in Houston. The accusations rippled through Houston's energy industry as federal agents fanned out in search of information on Thane-Coat. "They [Customs agents] said they wanted a big fine," says one worker in the oil patch questioned about the Thane-Coat case. "Millions. They came in several times and asked for things, documents and stuff."
But most cases, like the one involving Tex-Co, have ended in plea bargains and a promise to assist investigators in other cases. Sea Traders' former owner, Murtaugh, agreed a few weeks ago to plead guilty on one of the counts against him. Soon after, the U.S. Attorney's office dismissed charges against Sea Traders, absolving it of any role in the scheme. Murtaugh now awaits sentencing in U.S. District Court for his role in circumventing the embargo. Murtaugh's attorney, Ron Waska, says Murtaugh was off at his country retreat and not available for an interview.
By accepting the plea deal, Murtaugh faces a maximum penalty of ten years in jail and a $250,000 fine, though Waska insists he can't be looking at more then "eight or nine months" in jail, and may get off on probation. If he does go to jail, Murtaugh will be the first American businessman to find himself behind bars for trading with the enemy. No one in the Justice Department is making bets publicly whether he'll be the last.