Virginia Security Firm Accused of Defrauding Iraqi Government

    Oct. 11, 2004
    Contracted to provide security for the Baghdad airport, the company allegedly defrauded the Iraqi government and U.S. taxpayers out of tens of million of dollars

    Source Associated Press

    A politically connected start-up firm, awarded a no-bid contract to provide security for Baghdad's airport, defrauded U.S. taxpayers of tens of millions of dollars, two top former workers charge in a lawsuit unsealed last week.

    The Bush administration decided not to join the whistleblowers' civil suit alleging fraud against the company, run by a former Republican congressional candidate. The whistleblowers' attorney said a Justice Department lawyer told him the reason was that the alleged victim was the U.S.-financed and led Coalition Provisional Authority, not the U.S. government.

    Justice Department spokesman Mark Corallo said the department didn't comment on why it declined to join such suits.

    It's unusual for the Justice Department to decline to join a suit that has a load of documents and when criminal prosecution is likely, said Patrick Burns, a spokesman for Taxpayers Against Fraud, a group that monitors citizen suits.

    On Sept. 30, the Defense Department put the firm, Custer Battles LLC of Fairfax, Va., on a list that bans it from getting federal contracts, citing ''adequate evidence of the commission of fraud, antitrust violations, embezzlement, theft, forgery, bribery, false statements or any other offenses indicating a lack of business integrity.''

    The two whistleblowers said they'd been in contact with Justice and Defense Department investigators about an ongoing criminal investigation.

    The whistleblowers - Robert J. Isakson, a former FBI agent who investigated white-collar crime and was managing director for a Custer Battles partner, and W.D. ''Pete'' Baldwin, Custer Battles' former in-country manager - charged that Custer Battles set up four shell companies in the Cayman Islands, Beirut, Lebanon and Cyprus to help inflate bills that were passed on to taxpayers.

    Even though it was a new company, Custer Battles got a no-bid $16.8 million contract on July 1, 2003, to secure Baghdad's airport, according to the CPA's inspector general. The contract was cost-plus, meaning the firm passes along all its costs, plus a percentage profit.

    Isakson and Baldwin said - and provided lease documents as proof - that Custer Battles set up shell companies to inflate the costs of cabins, trucks and other items to get more money from the government.