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Inside the world of
war profiteers
From prostitutes to Super bowl tickets, a federal probe
reveals how contractors in Iraq cheated the U.S.
By David Jackson and Jason Grotto
21/02/08 "
Chicago Tribune" -- -- ROCK ISLAND, Ill.—Inside
the stout federal courthouse of this Mississippi River town,
the dirty secrets of Iraq war profiteering keep pouring out.
Hundreds of pages of recently unsealed court records detail
how kickbacks shaped the war's largest troop support
contract months before the first wave of U.S. soldiers
plunged their boots into Iraqi sand.
The graft continued well beyond the 2004 congressional
hearings that first called attention to it. And the massive
fraud endangered the health of American soldiers even as it
lined contractors' pockets, records show.
Federal prosecutors in Rock Island have indicted four former
supervisors from KBR, the giant defense firm that holds the
contract, along with a decorated Army officer and five
executives from KBR subcontractors based in the U.S. or the
Middle East. Those defendants, along with two other KBR
employees who have pleaded guilty in Virginia, account for a
third of the 36 people indicted to date on Iraq war-contract
crimes, Justice Department records show.
On Wednesday, a federal judge in Rock Island sentenced the
Army official, Chief Warrant Officer Peleti "Pete" Peleti
Jr., to 28 months in prison for taking bribes. One Middle
Eastern subcontractor treated him to a trip to the 2006 Super Bowl, a defense
investigator said.
Prosecutors would not confirm or deny ongoing grand jury
activity. But court records identify a dozen FBI, IRS and
military investigative agents who have been assigned to the
case. Interviews as well as testimony at the sentencing for
Peleti, who has cooperated with authorities, suggest an
active probe.
Rock Island serves as a center for the probe of war
profiteering because Army brass at the arsenal here
administer KBR's so-called LOGCAP III contract to feed,
shelter and support U.S. soldiers, and to help restore
Iraq's oil infrastructure.
In one case, a freight-shipping subcontractor confessed to
giving $25,000 in illegal gratuities to five unnamed KBR
employees "to build relationships to get additional
business," according to the man's December 2007 statement to
a federal judge in the Rock Island court. Separately, Peleti
named five military colleagues who allegedly accepted
bribes. Prosecutors also have identified three senior KBR
executives who allegedly approved inflated bids. None of
those 13 people has been charged.
A common thread runs through these cases and other KBR
scandals in Iraq, from allegations the firm failed to
protect employees sexually assaulted by co-workers to
findings that it charged $45 per can of soda: The Pentagon
has outsourced crucial troop support jobs while slashing the
number of government contract watchdogs.
The dollar value of Army contracts quadrupled from $23.3
billion in 1992 to $100.6 billion in 2006, according to a
recent report by a Pentagon panel. But the number of Army
contract supervisors was cut from 10,000 in 1990 to 5,500
currently.
Last week, the Army pledged to add 1,400 positions to its
contracting command. But even those embroiled in the frauds
acknowledge the impact of so much war privatization.
"I think we downsized past the point of general competency,"
said subcontractor Christopher Cahill, who for a decade
prepared military supply depots under LOGCAP. Now serving 30
months in federal prison for fraud, Cahill added: "The point
of a standing army is to have them equipped."
KBR, a former subsidiary of
Halliburton
Co., says it has been paid
$28 billion under LOGCAP III. The firm says it quickly
reports all instances of suspected fraud and has repaid the
Defense Department more than $1 million for questionable
invoices.
In a statement, KBR said its roughly 20,000 employees and
40,000 subcontractors have performed laudably in a war zone
where Army demands shift rapidly and local suppliers don't
always maintain ledger books. Spokeswoman Heather Browne
wrote: "Ethics and integrity are core values for KBR."
But a wiretapped transcript recently released in Rock Island
underscores the brazen nature of the exceptions.
In October 2005, with federal agents tailing them, three war
contractors slipped through London's posh Cumberland hotel
before meeting in a quiet lounge. For the rest of that
afternoon, the men sipped cognac and whiskey and discussed
the bribes that had greased contracts to supply U.S. troops
in Iraq.
Former KBR procurement manager Stephen Seamans, who was
wearing a wire strapped on by a Rock Island agent, wondered
aloud whether to return $65,000 in kickbacks he got from his
two companions, executives from the Saudi conglomerate
Tamimi Global Co.
One of the men, Tamimi operations director Shabbir Khan,
urged him to hide the money by concocting phony business
records.
"Just do the paperwork," Khan said.
Party houses,
prostitutes
In October 2002, five months
before the U.S.-led invasion of Iraq, Khan threw a birthday
party for Seamans at a Tamimi "party house" near the Kuwait
base known as Camp Arifjan. Khan "provided Seamans with a
prostitute as a present," Rock Island prosecutors wrote in
court papers. Driving Seamans back to his quarters, Khan
offered kickbacks that would total $130,000.
Five days later, with Seamans and Khan hammering out the
fine print, KBR awarded Tamimi the war's first $14.4 million
mess hall subcontract, court records show.
In April 2003, as American troops poured into Iraq, Seamans
gave Khan inside information that enabled Tamimi to secure a
$2 million KBR subcontract to establish a mess hall at a
Baghdad palace. Seamans submitted change orders that
inflated that subcontract to $7.4 million.
By June, Seamans and fellow KBR procurement manager Jeff
Mazon, a Country Club Hills resident, had executed
subcontracts worth $321 million. At least one deal put U.S.
soldiers at risk.
The Army LOGCAP contract required KBR to medically screen
the thousands of kitchen workers that subcontractors like
Tamimi imported from impoverished villages in Nepal,
Pakistan, India and Bangladesh.
But when Pentagon officials asked for medical records in
March 2004, Khan presented "bogus" files for 550 Tamimi
workers, Assistant U.S. Atty. Jeffrey Lang said in a court
hearing last year.
KBR retested those 550 workers at a Kuwait City clinic and
found 172 positive for exposure to hepatitis A, Lang told
the judge. Khan tried to suppress those findings, warning
the clinic director that Tamimi would do no more business
with his medical office if he "told KBR about these
results," Lang said in court. The infectious virus can cause
fatigue and other symptoms that arise weeks after contact.
Retesting of the 172 found that none had contagious
hepatitis A, Lang said, and Khan's attorneys said in court
that no soldiers caught diseases from the workers or from
meals they prepared. It remains unclear if that is because
the workers were treated or because they did not remain
infectious after the onset of symptoms.
Still, the incident shows how even mundane meal contracts
can put troops at risk. Similar disease-testing breaches
cropped up at cafeterias outsourced to firms besides Tamimi,
former KBR Area Supervisor Rene Robinson said in a Tribune
interview.
"That was an ongoing problem," Robinson said. "When the
military asked for paperwork, it was spotty." KBR was forced
to begin vaccinating the employees at their work sites, he
added.
Tamimi and its U.S. lawyers did not respond to requests for
comment. The company has said it is cooperating with federal
authorities.
By July 2005, Tamimi had secured some 30 KBR troop feeding
subcontracts worth $793.5 million, records show. Khan
continued to negotiate Iraq war subcontracts for Tamimi
until shortly before he was arrested in Rock Island in March
2006.
He is now serving a 51-month prison sentence for lying to
federal agents about the kickbacks he wired to Seamans, who
pleaded guilty and served a year and a day in prison. Both
declined to comment.
Seamans, a 46-year-old Air Force veteran, once taught ethics
to junior KBR employees. At his December 2006 sentencing
hearing, he expressed remorse for taking the kickbacks,
telling the judge: "It is not the way that Americans do
business."
It was another repentant LOGCAP veteran standing before a
Rock Island judge on Wednesday. Peleti, formerly the
military's top food service adviser for the Middle East,
wept as he admitted taking bribes from Tamimi and three
other subcontractors between 2003 and early 2006.
Ribbons and badges glittered across Peleti's pressed green
Army shirt. "I stand here before you today to convey my
remorse and sincere regret," he said, then broke down.
One subcontractor, Public Warehousing Co., took Peleti and
another top Army official to the Super Bowl, a defense
investigator said in court Wednesday. The firm has denied
wrongdoing. Khan also bribed Peleti to influence LOGCAP
contracts with cash. Peleti was arrested in 2006 while
re-entering the U.S. at Dover Air Force Base with a duffel
bag stuffed with watches and jewelry as well as about
$40,000 concealed in his clothing.
While prosecutors documented kickbacks in only the first two
of Tamimi's mess hall subcontracts, they contend that the
tone was set to corrupt the system.
"Tamimi and Mr. Khan have their hooks into Mr. Seamans, they
have their hooks into KBR," Lang said in court last year.
"It is difficult to assess the kind of damage that did to
the integrity of the subcontracting process when the first
two subcontracts are corrupted."
Auditors in the
basement
Military auditors say they closely monitor the layers of KBR
subcontractors who actually perform most of the LOGCAP work,
stationing teams in Iraq. But one Rock Island search warrant
said auditors working back in the U.S. could manage only
limited reviews of the cascade of deals.
In the basement of one of KBR's Houston office buildings, a
25-member team from the Defense Contract Audit Agency had
"no communications" with "personnel on the ground," so they
could not confirm whether goods and services actually were
delivered, the search warrant application said.
In the absence of oversight, some Middle Eastern businessmen
would offer "Rolex watches, leather jackets, prostitutes,
and the KBR guys weren't shy about bragging about the fact
that they were being treated to all that stuff," said Paul
Morrell, whose firm The Event Source ran several mess halls
as a KBR subcontractor.
Such questionable relationships continued long after early
procurement managers like Seamans had been rooted out. Early
subcontractors such as Tamimi became almost indispensable in
part by outfitting Army cafeterias with expensive power
generators and refrigeration systems, records and interviews
show.
"If you ever gave Tamimi a hard time, you'd get a call,"
former KBR subcontract manager Harry DeWolf told the
Tribune.
When subcontracts came up for renegotiation, DeWolf said,
companies like Tamimi "would say, 'Fine, we're going to pull
out all of our people and equipment.' They really had KBR
and the government over the barrel."
Complicating the investigation of war-contract crimes, the
government of Kuwait has denied a U.S. request to extradite
two Middle Eastern businessmen accused of LOGCAP fraud. The
country's ambassador last year sent letters to the Justice
Department asking the U.S. to drop its case against one of
them, arguing that international agreements forbid U.S.
prosecution of Kuwaiti residents for crimes allegedly
committed on Kuwaiti soil. Prosecutors disagree, but a judge
is considering Kuwait's assertion.
Investigators also have faced challenges in dealing with KBR.
The company has withheld some internal company documents
relating to Mazon, Seaman's fellow KBR procurement manager,
the firm's attorneys wrote in court filings.
In response to one subpoena, the firm gave agents about
2,760 of Mazon's computer files but withheld 398 others,
saying they were covered by attorney-client privilege or
other protections.
Federal prosecutors say they have given KBR no special
treatment and that the company has legal rights afforded to
all firms whose employees have been charged with wrongdoing.
"We did withhold some documents as being privileged," a KBR
spokeswoman wrote, but added that the company has provided
statements and grand jury testimony.
Mazon has pleaded not guilty to charges that he inflated a
fuel contract. His attorneys say the fuel subcontract was
accidentally inflated when figures were converted from U.S.
dollars to Kuwaiti dinars then back again. At least 22 KBR
troop support subcontracts were inflated through similar
errors, Mazon's attorney J. Scott Arthur wrote in papers
filed in Rock Island.
KBR attorneys said the company informed federal officials of
three similar "double conversions" on other subcontracts.
But KBR said it "has not undertaken an exhaustive search of
its millions of pages of procurement documents" to determine
whether other such errors exist.
dyjackson@tribune.com
- jgrotto@tribune.com
Copyright © 2008, Chicago
Tribune
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