Contracts with the military are as varied and complex as the armed services themselves. The contracting process and performance thereof offers ample opportunity for individuals and companies to perpetrate fraud against the United States government. Recently, a series of cases prosecuted through the Department of Justice (DOJ) illustrate the various schemes used to defraud the United States government in a myriad of military contracts.
The DOJ announced this series of cases beginning in the middle of September, 2011. Three cases resulted in settlements, one in a criminal conviction and one is a recent indictment; but all include fraudulent activity relating to military contracts.
On September 16, 2011, the DOJ announced that a Saudi Arabia based company, Tamimi Global Company Ltd (Tamimi) agreed to pay 13 million dollars to the United States government to resolve allegations regarding a series of kickbacks which Tamimi paid to Kellogg, Brown & Root Inc. (KBR) to obtain subcontracts awarded under KBR’s prime contract with the U.S. Army to provide logistical support to the military in conflicts abroad. One example of such kickbacks were monies paid to subcontract manager Steven Lowell Seamans in return for favorable treatment in the award and performance of providing dining services at Camp Arifjan in Kuwait between October 2002 and March 2006. Other kickbacks were paid under five smaller subcontracts for dining services and other logistical support, such as shower/laundry units, in Iraq.
On September 21, 2011, the DOJ announced two cases involving companies falsely certifying that they qualified as vendors for special set aside contracts. In the first case, Lydia Demski agreed to pay $800,000 to resolve allegations she and her company caused false claims to be submitted to NASA’s Plumbrook facility in Sandusky Ohio. The contract was for the re-furbishment of equipment at the Plumbrook facility. NASA had set aside this particular contract to be performed by a Service Disabled Veteran Owned Small Business company. Lydia Demski misrepresented that her company Deerpath International qualified as such a business. Instead, once awarded the contract, Demski funnelled all the work to another company, Deerpath Corp. A whistle blower brought this case under the False Claims Act.
The second case announced on September 21, 2011, settled allegations against Future Research Corporation located in Huntsville, Alabama. Future Research Corp. inappropriately obtained contracts with the Navy. The particular contract at issue had been set aside for companies that qualified for the Small Business Administration Historically Underutilized Business Zone (HBZone). Although Future Research Corp. did not qualify for this program, the company and its president, Jesse Nunn falsely certified to the Navy that it indeed was qualified. The contracts were thus fraudulently awarded to the company. This case settled for $200,000.
The DOJ announced a criminal conviction against Neil Campbell on October 4, 2011. Mr. Campbell, an Australian citizen, pled guilty to charges that he steered United States funded contracts to a subcontractor in Afghanistan. He received $190,000 for steering $15 million in reconstruction contracts to particular companies in that country.
Finally, on October 12, 2011, the DOJ announced they recently indicted three individuals for their roles in bribery and fraud involving federal procurement contracts. The fraudulent scheme involved the U.S. Air Force Foreign Materials Acquisition Support Office (FMASO) contracts. The FMASO, on behalf of various military divisions, purchases foreign military material. Only a limited number of vendors are eligible to bid on the sale of the foreign material to FMASO.
Sylvester and Maria Zugrav are principal owners of one such vendor, Atlas International Trading Corporation. (Atlas) The Zugravs allegedly gave Jose Mendez, a former program manager for FMASO over $1,240, 500 in payments in exchange for favorable treatment during the procurement process. The favorable treatment included giving the Zugravs competitors’ bid information to aid the Zugravs in winning the contracts. The three are indicted on counts of procurement fraud, and bribery.