March 10, 2006 by s.z.

How To Succeed in Business Without Really Trying

From Atrios I learned that our favorite war profiteers, Custer Battles, have been found guilty of 37 separate fraudulent acts and ordered to pay over $10 million in assorted penalties.  

One of the guilty verdicts was in relation to the stolen forklifts, which is one of the best stories about how to commit fraud in wartime that I've ever heard, so let me retell it now (my account is derived from the lawsuit filed by the whistle blowers).

While working on a $21 million contract to safeguard Iraq's new currency as it was being distributed, Custer Battles set up shell companies through which to bill items needed for the contract so they could "inflate costs and create a mark-up in excess of that normally permitted under a cost-plus contract."

Custer Battles (CB) arranged for the forklifts used for moving Iraqi currency to be shown as being leased through their shell companies (at a cost of thousands of dollars per month per forklift).  At least one of the forklifts (and perhaps as many as eight of them) had actually been "liberated" from Iraqi Airways.  When it first set up shop at the airport, CB ordered its employees to confiscate the forklifts (which Iraqi Airways had been forced to abandon during the war), and paint over the Iraqi Airways insignia.  The shell companies then made up lease documents so that the Coalition Provisional Authority (CPA) could be billed for CB's use of the equipment which CB had stolen appropriated.

Of course, CB's lawyers are still arguing that the CPA wasn't a US governmental entity, and so the US courts have no authority over any contracts the CPA had with Custer Battles (and that the Iraqi courts wouldn't have any authority either, since the CPA is no longer in existence).  As it is, the judge only allowed the jury "to consider fraud charges on the first $3 million spent on the Custer Battles currency contract -- out of a total of about $20 million -- because that clearly came from the U.S. Treasury."

Anyway, here are a couple of interesting bits from the WaPo story about the verdict:

"This is a smashing victory for U.S. taxpayers and these whistle-blowers, though the Bush administration did nothing to help," said Alan M. Grayson, the attorney for the plaintiffs, Robert Isakson and William Baldwin. Under the federal False Claims Act, citizens can sue on behalf of the government and the Justice Department can then decide whether to join the suit, which it did not in the Custer Battles case.

I wonder why the Bush administration isn't interested in prosecuting cases of fraud and corruption involving government contractors in Iraq?  (I have some guesses, but I'd still like to hear their reasons.)

During the trial, retired Brig. Gen. Hugh Tant III told jurors that Custer Battles's performance amounted to "probably the worst I've seen in my 30 years in the Army." Tant had been overseeing the firm's work on the currency conversion contract.

He testified that of the 36 trucks the firm supplied, 34 did not work. When he confronted Battles, he said Battles responded: "You asked for trucks and we complied with our contract and it is immaterial whether the trucks were operational."

As you may recall, Michael Battles is a West Point graduate, a former Army Ranger, and a former Republican candidate for Congress (his partner told investigators from the Pentagon's IG staff that Battles was very active in the Republican party and spoke to people at the White House on an almost daily basis).  And he's a patriot.

Now, for the punchline:

Grayson said yesterday that there are "dozens" of other fraud cases about contracts in Iraq that remain sealed because the {Justice] department has not decided whether to join them or not.

Like Atrios said, you'd think that conservatives would care about stuff like this, because it's their tax money that was stolen, after all.

P.S.

Check out the later comments to our post from last year on this topic -- some former CB employees and others who had dealings with the firm have stopped by, and they aren't exactly fans of the company.

12:21:25 AM