WASHINGTON, 27 August 2006 — The early days of America’s reconstruction program in Iraq were heady days for US businessmen, especially shady American entrepreneurs who turned the program for the country into their own devious deals. Many have been caught, but now it seems questionable as to whether they will be punished.
Now, in the first of what promises to be many such cases, a US federal judge on Friday set aside a verdict of corporate fraud in Iraq on disputed technical grounds, raising questions about the ability of whistleblowers and the US government to pursue companies that profited illegally in Iraq during the chaotic year after the invasion.
Last March, based on evidence provided by two company whistleblowers, a federal jury found that the contractor Custer Battles LLC had filed grossly inflated invoices to the Coalition Provisional Authority. In the civil suit, the first Iraq-related case to be brought under the False Claims Act, the company was declared liable for more than $10 million in damages and penalties.
The case was expected to be the first of dozens to be filed under the act, a crucial tool against government fraud that allows company insiders to sue and share any damages awarded to the government. Numerous such cases from Iraq have been filed and are under seal while the Justice Department completes its initial investigations, lawyers and federal officials say.
But during its trial and on appeal, an underlying issue, Custer Battles asked whether bills submitted to the Coalition Provisional Authority could be regarded as bills presented to the United States government. The coalition authority, it said, was an entity created and largely financed by the United States to run Iraq, and largely staffed by American officials, but with an ambiguous legal status.
On Friday, Judge T. S. Ellis III, of the Federal District Court in Alexandria, Virginia, said the plaintiffs had “failed to prove that the claims were presented to the United States.” The CPA, the judge ruled, was an international entity, and bills presented to American officials then detailed to the authority were not subject to the False Claims Act.
Lead lawyer for the whistleblowers, Alan Grayson, of Grayson & Kubli in McLean, Virginia, said they would appeal the decision.
News of the nebulous decision caused a swift response: Chris Floyd in the Baltimore Chronicle & Sentinel wrote: “US District Court Judge T.S. Ellis’s judgment effectively provides blanket immunity for the many politically-wired gorgers who made off with almost $9 billion in ‘unaccounted-for’ taxpayer money during the CPA’s misrule of Iraq from April 2003 to June 2004 — one of the greatest heists in world history.
“Why will the mammoth fraudsters go free?” writes Floyd. “Because of the iron illogic behind the decision. Although the CPA was created, funded, staffed and directly controlled by the US government, Ellis declared it was not, in fact, an entity of the US government. Therefore, Custer Battles — and by extension any other accused grafter from the CPA’s golden age — cannot be sued under the federal False Claims Act for defrauding the US government.
“For even if massive fraud was committed — and Ellis, who also presided over Custer Battles’s jury trial in May, clearly indicated that it was — the ‘victim’ no longer exists: The CPA has dissolved into air, into thin air… So, case dismissed — and the blood money stays safely in corporate coffers,” notes Floyd.
But the ‘eau de corruption” does not end with shady American contractors, the seductive stench also appears to have tainted US officials and officers, too.
Case in point: A US Army Reserve officer pleaded guilty on Friday to improperly steering millions of dollars in Iraq reconstruction contracts as part of a conspiracy involving kickbacks, smuggling and sexual favors.
Lt. Col. Bruce Hopfengardner, 46, of Frederick, Virginia, is the first military officer to admit taking part in the scheme to defraud the US-led occupation authority, pleading guilty to conspiring to commit wire fraud and money laundering.
On November 2003, Hopfengardner was assigned as an advisor to the CPA-SC region in Al-Hillah, Iraq, where he was responsible for managing various construction projects.
It was in connection with those projects, that he, Robert Stein and others steered contracts to Philip Bloom, a US citizen operating construction services and security companies in Iraq, in exchange for cars, expensive jewelry, computers and other items of value. The information alleges that Bloom caused wire transfers originating in Iraq to bank accounts in the US controlled by Hopfengardner during the period of February 2004 to July 2004. Bloom sent approximately $175,000 in laundered funds to Hopfengardner, and purchased a Yukon Denali in June 2004. On April 18, 2006, Bloom pleaded guilty to conspiracy, bribery and money laundering. Stein pleaded guilty on Feb. 2, 2006, to five charges — conspiracy, bribery, money laundering and two weapons charges. Both are in custody awaiting sentencing.
