Update [2005-4-1 16:45:29 by susanhbu]: JUST IN: Now let’s see if they follow through. The previous diary material remains below. The story from AP/Newsday:

Justice: Iraq Fraud Can Be Tried in U.S.

By MATT KELLEY, Associated Press Writer

April 1, 2005, 5:53 PM EST

Image Hosted by ImageShack.usWASHINGTON — Contractors for the former Coalition Provisional Authority in Iraq can be sued in U.S. courts under an anti-war-profiteering law, the Justice Department contended in a federal case Friday.

Government lawyers said the federal False Claims Act applies to contracts issued by the CPA, which ran Iraq from shortly after the 2003 invasion until it handed over power to an interim Iraqi government last June.

Although much of the money the CPA used was seized from the former government .. U.S. government or military workers distributed it, making fraud against the CPA equal to fraud against the U.S., … Justice Department lawyers said in a court brief.

The brief came in response to a judge hearing a fraud lawsuit against the security firm Custer Battles LLC. …

Custer Battles [argues] it cannot be sued in the U.S. for actions involving the use of seized Iraqi funds … [its lawyers] said U.S. officials originally had declined to take the case against Custer Battles for the same reason.

The Justice Department brief offered no opinion on whether Custer Battles defrauded the CPA. But it did say the False Claims Act is an important tool for “rooting out any fraud that might have occurred during the occupation of Iraq.”

[The] brief sided with lawyers for the former Custer Battles employees, saying that the U.S. law applied because U.S. officials were handing out the money. Victor Kubli, one of the former employees’ lawyers, said the brief raises the “pregnant question” of why U.S. officials originally said CPA contracts were not covered by the U.S. anti-fraud law.

A lawyer for Custer Battles said Friday he believes the False Claims Act only applies to contracts using money from the U.S. Treasury, not the Iraqi funds used in the contracts … the Justice Department “is attempting in this brief to extend the False Claims Act far beyond its intent and purpose.”

The former employees, Robert Isakson and William Baldwin, sued under a federal law that allows citizens to sue on behalf of the government when they suspect fraud in federal contracting. Should they win, those who bring the lawsuit can get up to 30 percent of the money recovered. …

Isakson and Baldwin say they were threatened and fired when they objected to Custer Battles’ business practices. The lawsuit says Custer Battles billed the CPA for work that was never done, employees who were never hired and equipment which never arrived.

Custer Battles has denied any wrongdoing and has asked the court to throw out the case.

The company and the former employees have until April 15 to file briefs with U.S. District Judge T.S. Ellis III, who will then decide whether to dismiss the case.

[The] brief also gives details of how the United States moved money to Baghdad to fund the fledgling Iraqi government and pay contractors.

A dozen U.S. military flights carried about $10.3 billion in cash to Baghdad during the time the CPA was governing Iraq, the brief said. That currency was deposited in the Central Bank of Iraq. The CPA used wire transfers to make another $6 billion in payments. … (Emphases mine.)

Previous diary information:

I have a computer screen full of articles about the unbelievable fraud committed by Custer Battles against U.S. taxpayers, but there is NOT ONE story  about today’s looming deadline in the New York Times, the Washington Post, the LA Times, or any wire service. Last week’s Newsweek article, “Follow the Money,” is subtitled:

“Watchdogs are warning that corruption in Iraq is out of control. But will the United States join efforts to clamp down on it?”

Pressure has been building on the administration to join the case [with whistleblowers] — or at least to file a brief saying publicly if it believes defrauding the CPA is the same as defrauding the United States. The judge’s latest deadline for that brief is this Friday. [That’s TODAY.]

Why does this matter so much? Find out below:
Jason McLure’s March 4 article in Legal Times, “How a Contractor Cashed In on Iraq,” which goes into the legal complexities of this and other such cases, notes the importance:

On Feb. 25, the Justice Department told the court it would file a brief by April 1.

One senior Pentagon lawyer told Legal Times that a number of other suits have been filed that will turn on this exact question.

Should the court decide that the False Claims Act does not apply to CPA contracts in the Custer Battles case, procurement attorneys say it’s unclear how violations of those contracts can be prosecuted in other cases.

Image Hosted by ImageShack.usIn other words: The American taxpayer gets screwed.  Again.

The solitary string-on-our-finger “reminder” to nudge us, the people, and the Justice Dept. that today IS the day came from a news story — “U.S. Excuses Mercenary Firm Accused of Defrauding Taxpayers” —  found at The NewStandard News, an independent Internet news service:

“Assuming the Justice Dept. fails to sign on to a suit against private paramilitary firm Custer Battles filed by two former associates, the government will be officially ignoring a claim of some $50 million in scammed funds.”

Not that most folks at BoomanTribune or Daily Kos need a primer, but it’s good to review the allegations of the whistleblower case.

Who are these Custer Battles dudes?

According to the LA Times, Custer Battles was a newly formed company with no experience in the security industry when in the spring of 2003 it landed one of the first contracts issued in post-invasion Iraq. The no-bid contract to maintain security at the Baghdad airport was worth $16 million, the Times reported.

The Virginia-based company is headed by Scott Custer, a former Army Ranger, and Mike Battles, a former CIA employee, who was fined by the Federal Elections Commission for misrepresenting campaign contributions during a failed race for Congress in Rhode Island in 2002. Battles has also been a commentator for the Fox News Channel. …

What shenanigans did they pull? From Legal Times:

A $33,000 food order in Mosul was billed to the U.S.-led interim government of Iraq at $432,000. Electricity that cost $74,000 was invoiced at $400,000. Even $10 kettles got a 400 percent markup.

Documents unearthed as part of a whistleblower suit against Fairfax, Va.’s Custer Battles reveal for the first time the extent to which the defense contractor is accused of gouging the Coalition Provisional Authority, which governed Iraq following the U.S. invasion of the country in 2003. …

Some more allegations:

  • “Frank Willis [SEE PHOTO BELOW], a former CPA [Coalition Provisional Authority] official … testified before Congress in February that he handed $2 million in shrink-wrapped $100 bills to a representative from Custer Battles without properly accounting for the cash award.”
  • A lawsuit “claims that Custer Battles double-billed the CPA for salaries and that they repainted forklifts they found at Baghdad airport before leasing them back to the US government at a rate of $1,000 per month per machine.”
  • Billed “the Coalition Provisional Authority $157,000 for a helicopter pad that in fact cost $95,000.”
  • The Air Force, “which suspended the Custer Battles contract, wrote a memorandum citing suspicion of repeated fraud. The Air Force … calls the evidence of company misconduct ‘of so serious or compelling a nature that it affects their present responsibility to be government contractors or subcontractors.'”
  • Memoranda “written primarily by two company managers, charged that the security firm repeatedly billed the occupation authorities for nonexistent services or at grossly inflated prices.”

Writes Max Boot — a weekly columnist for The Los Angeles Times and Senior Fellow in National Security Studies at the Council on Foreign Relations — in “The Iraq War’s Outsourcing Snafu,” an op-ed on March 31:

Peter W. Singer, a fellow at the Brookings Institution and author of “Corporate Warriors,” estimates that there are 20,000 to 30,000 civilians in Iraq performing traditional military functions, from maintaining weapons systems to guarding supply convoys. If you add foreigners involved in reconstruction and oil work, the total soars to 50,000 to 75,000. To put this into perspective: All of Washington’s allies combined account for 23,000 troops in Iraq. In the latest issue of Foreign Affairs, Singer quips that “President George W. Bush’s ‘coalition of the willing’ might thus be more aptly described as the ‘coalition of the billing.’ ”

Let us stipulate that most contractors are upstanding, hardworking individuals who perform valuable and dangerous work. At least 175 have been killed and 900 wounded in Iraq. But their labor has been tarnished by scandals and snafus too numerous to ignore.

Oil-services giant Halliburton and the security firm Custer Battles, among others, have been accused of swindling U.S. taxpayers. Other contractors are said to have been simply ineffective. Vinnell Corp. did such a poor job of training Iraqi army recruits that half of its first battalion walked off the job. The Army had to step in to perform the work itself.

Other companies have been accused of human rights violations [an important section worth a separate diary by someone]: …

The most valued contractors are experienced former U.S. Special Forces operatives whose training cost the Pentagon hundreds of thousands of dollars. They are being lured out of uniform by the promise of making $500 to $1,000 a day. (If they stay in the service they’ll be lucky to make $140 a day.) And where does that money come from? Pretty much all the foreign firms in Iraq are paid by the U.S. Treasury. So the government is in competition with itself for its most skilled and hard-to-replace soldiers. Does this sort of outsourcing really make sense?

Bottomline:  Today’s deadline sets a precedent. Will the Justice Dept. go after any contractors who have bilked the U.S. Treasury of millions and millions of dollars?  

“Coalition of the billing,” indeed.

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CAPTION: “‘Fraud-free zone’: Willis (center) in Iraq with two CPA [Coalition Provisional Authority] colleagues, preparing to pay a contractor in 2003” (Newsweek)  Note:  Willis testified before Congress, as noted above, about the allegations of corruption and pay-offs.

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