Shell firms shielded US contractor from taxes
Defense outfit may have saved millions

By Farah Stockman
Globe Staff / May 4, 2008

WASHINGTON - In March 2005, one of the Pentagon's most trusted contractors - Virginia-based MPRI, founded by retired senior military leaders - won a $400 million contract to train police in Iraq and other hotspots. Two months later, MPRI set up a company in Bermuda to which it subcontracted much of the work.

It was not the first time that MPRI executives had used a shell company in an offshore tax haven to perform government-funded work. A year earlier, MPRI headed a joint venture that won a $1.6 billion contract to provide US peacekeeping forces in Kosovo and elsewhere. Three months later, MPRI set up a company in the Cayman Islands to do the work.

Like MPRI's Bermuda subsidiary, the Cayman Islands company appears to have no phone number, website, or staff of its own there.

Rick Kiernan, an MPRI spokesman, declined to explain why the company created the two offshore entities and stressed that MPRI operates in "total adherence or compliance with the current law."

But tax lawyers say that MPRI appears to be avoiding the payment of roughly $4 million dollars a year in Social Security and Medicare taxes for the police-training contract alone and is sidestepping scrutiny by hiring workers through offshore entities based outside the jurisdiction of the Internal Revenue Service.

"The employer is trying to take itself out of the audit reach of the IRS," said California-based tax lawyer James R. Urquhart III...[Open in new window]