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WASHINGTON — Federal investigators are targeting a pair of British companies in a procurement fraud case that extends a long-running probe of corruption in Iraq to the shores of America's staunchest ally.
The case reveals the expanding reach of an investigation into how officials spent billions of dollars on reconstruction projects in Iraq. And it shows how an often haphazard flow of reconstruction funds created opportunities for those looking to cheat the system.
The picture now emerging indicates the wrongdoing isn't limited to crooked American and Iraqi officials and contractors. U.S. allies in the unpopular war apparently were helping themselves, too.
The companies in England, aided by a Massachusetts businessman, allegedly created phony shipping bills to collect nearly $8.5 million for dozens of armored vehicles they never delivered to Iraq's Interior Ministry, according to court records newly made public. The businessman, Benjamin R. Kafka, pleaded guilty in April and is cooperating with U.S. authorities.
The contract for the vehicles was awarded in June 2004, just as the U.S.-led Coalition Provisional Authority was disbanding and handing control of the government to the Iraqis. Management and oversight of the huge sums of U.S. and Iraqi money were weak at best as cash flowed to scores of initiatives aimed at getting the country back on its feet.
The dysfunction undermined the reconstruction effort early on. Indeed, U.S. authorities managing the vehicle contract for the Iraqis terminated the deal in December 2005 because the vehicles weren't shipped. Yet they were unaware the companies had already been paid, the court records state.
A separate case that played out in a South Korean military court several weeks ago is another example of the international scope of the investigation. Three South Korean soldiers were convicted of accepting or demanding bribes while managing rebuilding projects in northern Iraq largely financed with U.S. money.
The South Korean court's action followed an inquiry by the Office of the Special Inspector General for Iraq Reconstruction, the Army Criminal Investigation Command, Defense Criminal Investigative Service and South Korean officials. All three soldiers have appealed the rulings.
While the U.S. military presence in Iraq is decreasing, tips from whistle-blowers continue to pour into the special inspector general's office. The office has 81 open investigations into potential fraud and waste, up from 77 at the end of March.
Since 2004, oversight work by the special inspector general's office has led to 28 criminal indictments and 20 convictions exposing waste and fraud in reconstruction work.
The Justice Department could issue two dozen or more indictments in coming months for misdeeds related to reconstruction work, Stuart Bowen, the special inspector general, said in a recent interview with The Associated Press.
Bowen's office and U.S. legal officials wouldn't comment on the British case.
Zeroline Limited, a company in Great Yarmouth, on Britain's east coast, was selected for the Interior Ministry vehicle contract, according to the documents that Justice Department attorneys filed with the U.S. District Court in Massachusetts.
The money to pay for the vehicles came out of the Development Fund for Iraq, an account made up of Iraqi oil revenues and financial aid from the U.S. and other countries.
After receiving the award, Zeroline hired Alchemie Technology Group of London and its subsidiary, APTx Vehicle Systems, as subcontractors to build and deliver the vehicles by July 2005. Alchemie's Web site says the company was founded in 1999 to use Russian technologies for manufacturing high-strength, lightweight products.
Zeroline's top executive is Peter Tarrant, according to the court records. Alchemie's chief executive officer is Haslen Back, a former officer in the British army. Graham James, a retired Scotland Yard deputy commissioner, is chairman of APTx. None of them responded to phone calls or e-mails.
Alchemie's Web site lists Kafka as president of its American operations in Sharon, Mass., responsible for sales, marketing and business development. Kafka also had his own business, Global Networx Corp.
A month before the delivery date, prosecutors say, Zeroline and Alchemie submitted falsified documents claiming payment for the vehicles. The bill of lading was from a "phony" company called GNX Logistics, located at Kafka's address, the court documents say.
"Kafka knew and permitted (Haslen Back), and others, to create a false bill of lading indicating receipt and shipment of the vehicles on a business form of a nonexistent entity called GNX Logistics," the documents say.
Zeroline and Alchemie were paid $8,480,550 even though the vehicles were never delivered. In December 2005, after extensive communications with Tarrant, U.S. contracting officials terminated the contract for nonperformance, unaware the payment had been made six months earlier.
It's not clear what happened to the money or when the investigation began. But the records show Bowen's office started leaning on Kafka early last year, seeking e-mails and bank account information to unravel the alleged scheme and determine whether Zeroline and Alchemie could be prosecuted in the U.S.
Kafka was little help, an August 2008 document filed by U.S. attorneys states. He provided 73 pages of documents, many unreadable or duplicates.
But in mid-April, Kafka pleaded guilty to concealing his knowledge of the phony billing scheme. Kafka didn't return telephone calls. His attorney, Henry Katz, said he needed to confer with his client before commenting. Katz didn't call back.
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On the Net:
Special Inspector General for Iraq Reconstruction: http://www.sigir.mil/
