Halliburton Completes Spin-Off of KBR to Distance from Iraq War Scandals, Fraud Investigations, and $2.7 Billion in Questioned Costs

Halliburton announced the completion of its spin-off of KBR on April 5, 2007, separating the subsidiary that had generated most of its Iraq War controversies after 44 years of corporate integration. The separation followed KBR’s initial public offering on November 16, 2006, which raised $470 million with shares gaining 22% on the first trading day—demonstrating that investors valued KBR’s government contracting business despite systematic fraud, overbilling, and accountability failures documented by Pentagon auditors and congressional investigations. CEO David Lesar had announced in September 2004 that Halliburton was considering the spin-off because KBR was “bearing the brunt of a ‘vicious campaign’ of political attacks,” framing documented fraud and overbilling as partisan persecution rather than legitimate accountability concerns.

The spin-off occurred as multiple Iraq War scandals were intensifying and threatening Halliburton’s broader business reputation. In February 2007, just two months before the separation announcement, Congress was informed that $2.7 billion paid to Halliburton and its subsidiaries for Iraq work was either excessive or unsupported by credible documentation. A Justice Department fraud lawsuit stipulated that KBR had systematically overcharged the government between 2003 and 2006—the years when Halliburton owned and controlled the company. Senate Armed Services Committee investigations documented that “KBR lacked credible records to support more than $200 million in spending,” with retired Army official Charles M. Smith testifying about systematic financial irregularities. Pentagon audits had found KBR overcharged $61 million for gasoline imports and $67 million for dining services, charged $100 for two pounds of bacon and $75 to wash a single bag of laundry, and ran empty trucks while billing for cargo.

The timing of the separation demonstrated strategic corporate restructuring to evade accountability while maintaining profitable government contracting operations. By spinning off KBR before the full scope of Iraq War fraud became legally actionable, Halliburton could claim the liabilities belonged to an independent company while retaining the oil services and energy infrastructure business that had made Dick Cheney’s tenure as CEO (1995-2000) profitable. The separation mirrored Blackwater’s rebranding strategy: when a corporate entity became too toxic from documented misconduct, restructure to create legal and reputational distance while maintaining operational continuity and government contracting relationships. KBR became an independent publicly traded company on the New York Stock Exchange under ticker symbol KBR, maintaining Houston headquarters and continuing to receive billions in government contracts despite the same management and operational practices that produced systematic fraud under Halliburton ownership.

The corporate separation created legal advantages for both entities in ongoing and future litigation. Halliburton could argue it was no longer responsible for KBR’s Iraq War conduct after April 2007, while KBR could claim to be a “different company” than the Halliburton subsidiary that committed fraud between 2003-2006. This structure complicated congressional oversight, criminal investigations, and civil lawsuits that sought to establish accountability for systematic overbilling: plaintiffs and prosecutors would need to navigate corporate genealogy to determine which entity bore responsibility for specific fraudulent acts, while both companies could point to the separation as evidence they were distinct from the entity that committed documented violations. The separation demonstrated how corporate form could be manipulated to frustrate accountability mechanisms that would be impossible for government agencies to employ—the Army Corps of Engineers could not simply rebrand itself to escape responsibility for systematic fraud.

The spin-off occurred amid cascading KBR scandals beyond financial fraud: Jamie Leigh Jones had filed her lawsuit alleging gang rape by KBR employees and subsequent detention in a shipping container (December 2007 would formalize her complaint), electrocution deaths from faulty KBR electrical work were accumulating, and human trafficking allegations would emerge in August 2008 involving 13 Nepali workers whose passports were seized before being sent to work at Al Asad Airbase. By separating from KBR before these scandals reached peak public visibility, Halliburton ensured that news coverage would identify KBR as the responsible party rather than “Halliburton subsidiary KBR,” protecting Halliburton’s brand and stock price from association with systematic contractor misconduct.

The successful IPO and separation demonstrated that contractor accountability failures posed no meaningful threat to corporate profitability or government contracting relationships. Despite documented fraud totaling billions, KBR emerged from the Halliburton separation as an independent contractor that would continue receiving major defense contracts. Halliburton shed the subsidiary responsible for Iraq War controversies while maintaining the profitable corporate structure and government relationships that Cheney had built as CEO. Neither company faced debarment from federal contracting, neither saw executives prosecuted for systematic fraud, and both continued as major government contractors with minimal operational changes. The separation proved that corporate restructuring could accomplish what would be impossible through legal accountability: eliminating consequences for billions in documented fraud while preserving the capacity to continue profiting from government contracts using the same cost-plus billing structures and minimal oversight that had enabled the original fraud.