Custer Battles: Justice Dept. won’t Intervene to Reclaim Millions From Military Contractor in Iraq

A U.S. military contractor in Iraq is at the center of a controversy over how American-forces disbursed and accounted for hundreds of millions of dollars in Iraq.

The firm, Custer Battles is being charged in a lawsuit of defrauding the Coalition Provisional Authority of tens of millions of dollars during work in Iraq, which included securing Baghdad International Airport.

Two former employees sued the company last year under the False Claims Act, seeking to recover damages on behalf of the US government. They allege that Custer Battles repeatedly billed the occupation authorities for nonexistent services or at grossly inflated prices. A few months after they filed the suit, the Justice Department declined to intervene on the whistle-blowers’ behalf.

Because the case is the first to be unsealed involving the charges of fraud in the multibillion-dollar Iraqi reconstruction effort, it could set precedents.

* Alan Grayson, attorney in the lawsuit by two former employees of Custer Battles. He testified about the case at a special Congressional hearing in February.
* Pratap Chatterjee, the managing director of CorpWatch.org and author of "Iraq, Inc."

AMY GOODMAN: We’re joined now by the attorney in the case, Alan Grayson, and in our studio by Pratap Chatterjee, independent reporter, managing editor of CorpWatch.org, and author of the book, Iraq, Inc. Let’s go first to Alan Grayson on the phone. He’s representing the two former employees. What is Custer Battles? First of all, start with the name.

ALAN GRAYSON: Well, Custer Battles was founded by two former army officers, Custer and Battles. Those are the names of the individuals who formed the organization. Custer was someone who tried to drum up mercenary work in Afghanistan when the occupation of Afghanistan began, and he was notably unsuccessful. Battles is someone who ran for Congress against Pat Kennedy in 2002, also notably unsuccessful, but in the course of doing so, he made some very powerful friends, and his leading largest contributor was, in fact, Haley Barbour, the head of the Republican National Committee.

AMY GOODMAN: Can you talk about what the former employees are charging?

ALAN GRAYSON: Certainly. The allegations are that this company committed any kind of fraud that they could imagine over the course of working for the Coalition Provisional Authority and as subcontractors under U.S. contract. For instance, they set up Cayman Islands subsidiaries and subsidiaries of subsidiaries in the Cayman Islands. Then they manufactured out of thin air invoices from these subsidiaries and handed them in under their prime and materials contracts, which basically operated like expense accounts, and they handed in these vouchers that they had created themselves, said that they were from their independent companies which were, in fact, subsidiaries, and they received millions and millions of dollars of reimbursement from the government.

AMY GOODMAN: Pratap Chatterjee, you have been investigating this, as well, for CorpWatch.org. Talk more about the defrauding that is being alleged.

PRATAP CHATTERJEE: There’s some very stark examples. An example of a $95,000 helicopter pad that they were supposed to build in Mosul, Iraq, and they billed $157,000 for it. And Mike Battles himself actually absent-mindedly left a piece of paper detailing how $3.74 million in what he had spent had been billed to the U.S. government for $9.8 million. So, you know, markups of 162%, so this is what we as taxpayers had to pay for these services. And basically, what’s most interesting I think about this case is not simply that they had these companies - there was a company called Secure Global Distribution and another one called Middle East Leasing in the Cayman Islands — is that everybody in Iraq does the same thing. Halliburton has a subsidiary called Service Employees International. If you work for Halliburton of Houston, your contract is signed with a company in the Cayman Islands, and it’s a tax dodge. We suspect, given that 59 out of 100 top federal military contractors have these offshore subsidiaries is that everybody is using this way to be able to pump up charges.

AMY GOODMAN: And Cayman Islands, that has to do with taxes, as well?

PRATAP CHATTERJEE: Absolutely, because, you know, it’s an offshore tax subsidiary, offshore tax haven, and so people place subsidiaries there in order to be able to zero their taxes out.

AMY GOODMAN: Talk about how this case is going, and what Custer Battles is alleging in terms of money coming from the C.P.A., ironically named, the Coalition Provisional Authority, and what the U.S. government is saying about it all.

PRATAP CHATTERJEE: Well, basically, Custer Battles - and maybe Alan can even explain, although this is the case made by the company, so maybe I’ll represent the company for a moment if I may, Alan, and then you can tell me what’s wrong with this — but Custer Battles is saying, well, the False Claims Act does not apply. The U.S. government has no jurisdiction over this money, because, a) this is Iraqi money, and b) the C.P.A., they didn’t even really exist, and therefore, it is not a legitimate U.S. agency that should be giving out this money. And so, in fact, I think Judge Ellis has asked the U.S. government to tell him whether or not this agency existed, and there’s some dispute. The Congressional Research Service, there’s a woman by the name of Elaine Halchin who’s an expert there who has been unable to decide whether or not the C.P.A., whether Paul Bremer’s organization actually existed. It does not appear to have been created under 1483, the resolution of the United Nations Security Council — or I can’t remember the Security Council or the General Assembly — on May 22, 2003, or if it was created by this thing called National Presidential - I forget what it’s called exactly. It’s a special directive of the President. It’s National Security Presidential Directive. However, this is a Presidential Directive that’s never been published, so we don’t know. And Alan, in fact, aren’t you waiting to hear as to whether, from the federal government, as to whether or not the C.P.A. even existed?

ALAN GRAYSON: Well, in fact, the one thing the federal government has agreed to do grudgingly in our case is to file a brief on April 1, April Fool’s Day, about whether, in fact, the False Claims Act applies to C.P.A.-type contracts. But in our mind, it’s not a realistic argument that the Senates are making here. This company was doing security work in a war zone under U.S. Military supervision. In fact, they were doing the same kind of work that the U.S. Military was doing in the same place at the same time. They were paid entirely, entirely with U.S. Treasury funds. The first $4 million they received was in cash, in bricks of $100,000, that’s 1,000 $100 bills that came directly from the U.S. Mint. And after that, they were paid with U.S. Treasury checks with a Statue of Liberty on them, and with wire transfers from Federal Reserve accounts in New York that were U.S. Treasury accounts.

AMY GOODMAN: Now, Alan Grayson, why isn’t the U.S. government helping in this? I mean, it’s about getting money back. It’s about fraud against the U.S. government.

ALAN GRAYSON: Well, there’s no good explanation. There’s no good answer to that question. In fact, the U.S. government should be helping, and they’re not. The Bush Administration has done nothing up to this point to get this money back. In fact, it was almost a year before they even cut off the flow of new contracts to this contractor. And to this day, Custer Battles is still performing security work in Iraq. In fact, they’re responsible for the security involved in the training of Iraqi army personnel right now. In fact, this corrupt contractor, who the government knew on October 18 of 2003, had already stolen $6 million from the government. Right to this day, the U.S. government is still stuffing money in their pockets.

AMY GOODMAN: Pratap Chatterjee.

PRATAP CHATTERJEE: Amy, it’s amazing. There’s an employee of Custer Battles who took $12 million in cash of the company, put it on a plane — I kid you not, it’s called the Flying Carpet — and took it to Beirut for safe keeping. So we’re talking — we have pictures, you know, of and testimony from the people who paid them at the C.P.A. There’s a man by the name of Frank Willis, worked for the U.S. government - well, for the Coalition Provisional Authority, really — and he has provided us with a picture of $2 million in cash that he was handing over. He said there was so much money, they were playing football with it.

AMY GOODMAN: Now, Frank Willis just testified, right, in Congress two weeks ago?

PRATAP CHATTERJEE: Indeed, he did, with Alan Grayson at the Democratic Policy Committee of the Senate.

AMY GOODMAN: So what is this going to come to now? The U.S. government has been putting off saying whether, in fact, the Coalition Provisional Authority that they set up exists at all? Is this one of the stumbling blocks right now, Alan Grayson?

ALAN GRAYSON: Well, in fact, you have to understand how reluctant the government has been to do this. It’s only as a result of the hearing, as a result of the fact that Senator Grassley, a republican, the number three republican in the Senate, sent a letter to the Attorney General saying, ‘What the heck is going on here?’ And a result of 325 newspaper articles they saw from the hearing, and perhaps the result of the fact that four former Custer Battles employees were featured on NBC the day after the hearing, and one of them is quoted as saying, “I don’t want any part of an organization that deliberately murders children and innocent civilians.” As a result of all that, on the last possible day that they could do so, the government grudgingly agreed to submit a brief to the court explaining not why this money could be recovered, but whether it could be recovered, and doing so on the last possible day, April 1.

PRATAP CHATTERJEE: Let me underline actually again what Alan said about the NBC report. Four soldiers testified that Custer Battles employees were going out in tanks and deliberately targeting U.S. civilians, and not only that -

AMY GOODMAN: U.S. civilians?

PRATAP CHATTERJEE: Iraqi civilians. Not only that, Alan’s clients are now being threatened — have death threats against them.

AMY GOODMAN: We have to leave it there. Pratap Chatterjee, Alan Grayson, thanks for being with us.

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