House chairman asks agencies to probe Blackwater

In letters sent to the Internal Revenue Service, Small Business Administration, and Labor Department on Monday, Rep. Henry A. Waxman, D-Calif., chairman of the House Committee on Oversight and Government Reform, requested investigations into whether Blackwater Worldwide, the private security contractor involved in the shooting of 17 Iraqi civilians last year, is complying with federal tax, small business and labor laws.

The committee says that Blackwater might have failed to withhold $50 million in taxes from workers' paychecks while receiving $1.25 billion in federal contracts since 2000.

"I request that the Internal Revenue Service initiate an inquiry into whether Blackwater has complied with federal tax laws and take any appropriate action," Waxman wrote in his letter to the IRS.

In March 2007, the IRS concluded that Blackwater had improperly designated security guards working in Iraq as independent contractors and not company employees to sidestep its obligation to withhold taxes on wages, Waxman said in a public statement accompanying the letters.

"As a result, Blackwater obtained small business contracts without competing with other qualified bidders that properly designated their guards as employees," said Waxman. His committee reported that Blackwater has won at least 100 small business contracts totaling more than $144 million since 2000.

Waxman also said that Blackwater refused to cooperate with a Labor Department audit to determine whether the security company violated equal employment opportunity laws.

In an October 2007 letter to Blackwater Chief Executive Officer Erik Prince, Waxman questioned whether the designation of guards as independent contractors constituted a "significant tax evasion." He noted one case in which Blackwater "sought to conceal the IRS ruling by entering into a nondisclosure agreement with the security guard who was the subject of the ruling, prohibiting him from sharing it with 'any politician' or 'public official.' "

In defending the designation of employees as independent contractors, Blackwater said that its security guards are "in no way directly supervised or controlled by Blackwater," according to the committee. But the panel's statement said that in television interviews and in prior legal arguments, Blackwater officials argued the opposite.

For instance, after four wrongful death suits by families of contractor employees who died in Fallujah were brought against the company, Fred F. Fielding, then Blackwater's legal counsel and now counsel to President Bush, "argued that the guards could not recover from Blackwater because they were 'employees' limited to only recovering workers' compensation," Waxman's statement said.

Blackwater ultimately steered the lawsuit into private arbitration, according to a May 2007 Associated Press report.

In 2006, SBA issued a ruling stating that Blackwater qualified as a small business based on the fact that the company classified fewer than 1,500 of its workers as employees while 1,000 others were designated as independent contractors. Five months later, the IRS "ruled that Blackwater's 'independent contractor' designation was without merit," Waxman wrote.

His committee said it reviewed more than 20,000 documents, held hearings, and heard testimony from six State Department officials who have said that Blackwater treats its independent contractors as employees, particularly when coordinating field operations in Iraq.

Waxman added that Blackwater's contracts with its security guards state that "for purposes of the Defense Base Act, Blackwater shall be the statutory employer of the contractor."