Democratic Lawmaker Seeks Federal Probe of Blackwater Business Practices

The head of the House oversight panel has asked three federal agencies to investigate embattled private security contractor, Blackwater Worldwide, for alleged business practice violations.

Government Reform and Oversight Committee Chairman Henry Waxman wants to know whether the company violated federal tax, small business and labor laws.

In letters sent Monday to the Internal Revenue Service, the Small Business Administration and the Department of Labor, Waxman wrote that the committee "has obtained evidence" indicating that Blackwater may have improperly designated its security guards as independent contractors rather than employees in order to "avoid paying and withholding federal taxes," "be eligible for small business preferences" and "avoid compliance with labor standards imposed on federal contractors."

The investigation follows the California Democrat's convening of two hearings late last year over allegations that independent contractors for the company had shot Iraqi civilians pre-emptively while on a security detail of State Department officials in the region.

A federal grand jury in Washington has also been investigating the September shooting deaths of the 17 Iraqi civilians in Baghdad's Nisoor Square, and late last month went to Iraq to depose witnesses who wanted to speak voluntarily on the matter. Iraqi citizens can't be compelled to testify to a U.S. grand jury.

In a memorandum to oversight committee members that accompanied the letters, Waxman argued that Blackwater's claims that its contracted security guards are independent operators contradicts the company's previous assertion that they are employees.

After the families of four security guards who died in Fallujah sued Blackwater for wrongful death, then-Blackwater attorney Fred Fielding, who is now White House general counsel, "argued that the guards could not recover from Blackwater because they were 'employees' limited to recovering only workers' compensation. In his legal brief, Mr. Fielding asserted that
the company's security guards were 'employees as a matter of law' and described this
conclusion as 'inescapable,'" Waxman wrote.

"The implications of Blackwater's actions are significant," Waxman wrote. "Committee staff have estimated that Blackwater has avoided paying or withholding up to $50 million in federal taxes by treating its guards as independent contractors rather than employees. It also appears that Blackwater has received more than $144 million in small business contracts that may not be justified and has evaded oversight by the Department of Labor."

Blackwater founder and owner Erik Prince has repeatedly denied wrongdoing by the company and has cooperated in other federal investigations, including the case of two contractors who were accused of gun smuggling. Bodyguards who testified to the grand jury on the Iraqi shooting deaths were given immunity in exchange for their statements.

Last week, Blackwater cancelled plans to build a training site outside San Diego, citing noise constraints rather than opposition from environmentalists and political activists opposed to the company's security duties in Iraq.