US: Inside the world of war profiteers

From prostitutes to Super bowl tickets, a federal probe reveals how contractors in Iraq cheated the U.S.
Publisher Name: 
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

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

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

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

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

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

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.

AMP Section Name:War & Disaster Profiteering
  • 15 Halliburton
  • 20 Logistics
  • 106 Money & Politics
  • 176 War Profiteers Site
  • 182 Health
  • 185 Corruption