[Corp. Watch] Pentagon's corporate outsourcing increases graft, negligence

[Corporation Watch]

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

Rock Island, IL (Chicago Tribune, Feb. 21) -- 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 Kellogg, Brown, and Root (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 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 fraud  
acknowledge the impact of so much war privatization.

	"I think [the Pentagon] 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 Corporation, 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 wiretap transcript of a wiretapped  
conversation 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 the two other men, 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 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.  
Attorney Jeffrey Lang said in a court hearing last year.

	KBR then tested those 550 workers at a Kuwait City clinic and found  
172 were 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.

	Re-testing 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."

	Another repentant LOGCAP veteran stood 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 KBR employees "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" from the  
military who relied on the facilities, former KBR subcontract manager  
Harry DeWolf told the Tribune.

	When subcontracts came up for re-negotiation, 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.