Three Owners and CEO of Contracting Company Indicted for Bribing Army National Guard Colonel

Three owners and the CEO of a government contracting company headquartered in Falls Church, Virginia, all of whom are retired Army National Guard colonels, were indicted today for their alleged participation in a scheme to bribe an active-duty Army National Guard colonel in order to obtain millions of dollars of Army National Guard marketing, retention and recruitment contracts.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Dana J. Boente of the Eastern District of Virginia, Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington, D.C., Field Office, Acting Special Agent in Charge Paul Sternal of the Defense Criminal Investigative Service (DCIS) Mid-Atlantic Field Office and Director Frank Robey of the U.S. Army Criminal Investigative Command’s Major Procurement Fraud Unit (Army-CID) made the announcement.

“As alleged in the indictment, four retired colonels have been charged with using their corporate marketing firm to funnel bribe payments to high-ranking accomplices in the Army National Guard to corruptly obtain lucrative marketing contracts,” said Assistant Attorney General Caldwell.  “This case is emblematic of the Criminal Division’s ongoing efforts to root out corruption wherever it may be found, including at the highest ranks of our armed services.”

“These criminal charges reflect our continued commitment to rooting out public corruption wherever it occurs,” said U.S. Attorney Boente.  “The public contracting process should be one of integrity and fairness, and these cases should send a strong message that public corruption will be vigorously prosecuted in the military as well as other areas of government.”

“The FBI’s top criminal priority is investigating and stopping corrupt officials and the organizations they do business with,” said Assistant Director in Charge McCabe.  “These indictments outline a significant bribery scheme that undermined a fair government contracting process.”

“The actions of the defendants have brought them dishonor and erode confidence in the integrity of a contracting process intended to support their fellow citizen soldiers,” said Acting Special Agent in Charge Sternal.  “The Defense Criminal Investigative Service, alongside its law enforcement partners and the U.S. Attorney’s Office, remain vigilant and committed to bringing individuals who subvert the acquisition system to justice.”

“Today’s indictment illustrates our commitment and cooperation shared between law enforcement agencies investigating this type of corruption and bribery,” said Director Robey.  “It is unconscionable how these former military officers betrayed the offices they once held for monetary gain.”

Edwin Stuart Livingston III, 67, of The Villages, Florida; Ronald Joseph Tipa, 68, of Sunny Isles Beach, Florida; Thomas Edward Taylor, 66, of Alexandria, Virginia; and Ross Bernard DeBlois Sr., 55, of Fairfax Station, Virginia, are each charged by indictment with one count of conspiracy to commit bribery, one count of bribery of a public official, one count of conspiracy to commit honest services fraud and five counts of honest services fraud.

According to the indictment, Livingston, Tipa, Taylor and John Jones, 77, a retired brigadier general from the New York Army National Guard, each owned 25 percent of MPSC and constituted MPSC’s Board of Directors.  DeBlois was the company’s CEO.

The National Guard Bureau (NGB) is a joint activity of the U.S. Department of Defense (DOD), the state units of the Army National Guard and the Departments of the Army and Air Force.  The NGB oversees the distribution of federal funding provided to the Army National Guard and its state units.

The DOD provides millions of dollars in federal funds to the NGB for, among other things, advertising, marketing and sponsorships in order to recruit new Army National Guard members.  The NGB then uses these funds to promote the Army National Guard on a national level by entering into marketing contracts.

According to the allegations in the indictment, in 2010 or 2011, Livingston and Tipa offered Robert Porter, 50, who then was an active-duty colonel in the Army National Guard who held a high-level position at the NGB, a deal in which MPSC would pay Porter 1 percent of the value of all contracts he steered to MPSC.  The indictment alleges that Porter was to receive the bribe payment after he retired from the NGB and began working for MPSC, and that the payment was to be concealed as an “incentive fee” or “bonus” payment in MPSC payroll records.

According to the indictment, during 2011 and 2012, Porter allegedly steered at least three NGB marketing contracts to MPSC, which were worth a total of approximately $5.5 million.  The indictment alleges that, during a July 2014 meeting of MPSC’s board of directors, DeBlois confirmed that three contracts were awarded to MPSC while Porter was “in uniform.”  Thereafter, Livingston, Tipa, Taylor and Jones allegedly unanimously voted to make the promised bribe payment to Porter.  The indictment further alleges that, between July and September 2014, MPSC made three payments to Porter, each for over $10,000.

In September 2014, Porter pleaded guilty to conspiracy to commit bribery and bribery of a public official, and in February 2015, Jones pleaded guilty to conspiracy to commit bribery and bribery of a public official in connection with this scheme.

The charges and allegations contained in the indictment are merely accusations.  The defendants are presumed innocent unless and until proven guilty.

The case was investigated by the FBI’s Washington Field Office, DCIS Mid-Atlantic Field Office and Army-CID’s Major Procurement Fraud Unit.  The case is being prosecuted by Trial Attorney Alison L. Anderson of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Jonathan Fahey of the Eastern District of Virginia.

Individuals with information regarding bribery or corruption within the NGB’s retention and recruitment contracting process or at MPSC should contact the FBI’s Washington Field Office at (202) 278–2000.

U.S. Seeks to Recover $12.5 Million Obtained from High-Level Corruption in the Philippines

The Department of Justice filed a civil forfeiture complaint today seeking to recover approximately $12.5 million in assets found in the United States that derive from bribery and kickback schemes in the Philippines spanning nearly a decade.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and Assistant Director in Charge David Bowdich of the FBI’s Los Angeles Field Office made the announcement.

“Over nearly a decade, Janet Napoles allegedly stole millions of dollars in funds entrusted to her for development assistance and disaster relief for the people of the Philippines,” said Assistant Attorney General Caldwell.  “In an effort to disguise and enjoy her ill-gotten gains, Napoles purchased properties and other assets in the United States for herself and her family members, including a condominium at the Ritz and a Porsche.  The Justice Department will not allow the United States to become a playground for the corrupt or a place to hide and invest stolen riches.”

“The FBI is committed to ensuring that the U.S. financial system is not used to launder the proceeds of foreign bribery schemes,” said Assistant Director in Charge Bowdich.  “Nor is the United States a safe haven for the fruits of corruption.”

As alleged in the complaint, from approximately 2004 to 2012, Philippine businesswoman Janet Napoles, 51, paid tens of millions of dollars in bribes and kickbacks to Philippine politicians and other government officials in exchange for over $200 million in funding for purported development assistance and disaster relief.  Napoles’ non-governmental organizations (NGOs), however, then either failed to provide, or under-delivered on, the promised support.  The complaint further alleges that Napoles also diverted NGO funds for her own personal use and benefit, often draining accounts within days of government disbursements.  For this conduct, the Philippines’ Office of the Ombudsman has charged Napoles, two of her children and numerous current and former Philippine politicians and other government officials in connection with what has been nicknamed the “pork barrel scam.”

The complaint alleges that Napoles transferred over $12 million in Philippine government-awarded funds to bank accounts in the United States in the names of, or controlled by, her family members.  According the complaint, Napoles used the money to purchase numerous assets, including a condominium at the Ritz-Carlton in Los Angeles for her 21-year-old daughter.  The complaint seeks to forfeit the proceeds from the sale of the Los Angeles condominium, along with several other assets, including a motel near Disneyland in Anaheim, California; properties in Covina and Irvine, California; a 19 percent stake in a California-based consulting company; and a Porsche Boxster that was purchased for another daughter.

Napoles is currently serving a sentence of life in prison in the Philippines for her role in the kidnapping and detention of her cousin, Benhur Luy, who served as Napoles’s finance officer and tracked her schemes.

The complaint was brought under the Kleptocracy Asset Recovery Initiative, in which a team of dedicated prosecutors in the Criminal Division’s Asset Forfeiture and Money Laundering Section work in partnership with federal law enforcement agencies to forfeit the proceeds of foreign official corruption and, where appropriate, return those proceeds to benefit the people harmed by these acts of corruption and abuse of office.  Individuals with information about possible proceeds of foreign corruption located in or laundered through the United States should contact federal law enforcement or send an email to kleptocracy@usdoj.gov

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The investigation was conducted by the FBI’s Los Angeles Field Office.  The case is being handled by Trial Attorney Alexis J. Loeb of the Criminal Division’s Asset Forfeiture and Money Laundering Section, with substantial support from the U.S. Attorney’s Office of the Central District of California, the U.S. Marshals Service and the Criminal Division’s Office of International Affairs.  The Justice Department also thanks the Philippines’ Office of the Ombudsman, Anti-Money Laundering Council, National Bureau of Investigation and Department of Justice for their cooperation in this matter.

 

U.S. Army Sergeant Sentenced to 51 Months in Prison for Taking Bribes While Deployed in Afghanistan

A sergeant with the U.S. Army was sentenced today to 51 months in prison for accepting bribes from Afghan truck drivers at Forward Operating Base (FOB) Gardez in Afghanistan, in exchange for allowing the drivers to take thousands of gallons of fuel from the base for resale on the black market, announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Michael J. Moore of the Middle District of Georgia.

James Edward Norris, 41, of Fort Irwin, California, was sentenced by Chief U.S. District Judge Clay D. Land of the Middle District of Georgia, who also ordered Norris to pay $176,100 in restitution and to forfeit two vehicles he purchased with money from the bribery scheme and $70,000 in cash that he received from the scheme.

In connection with his guilty plea, Norris admitted that he conspired with other soldiers stationed at FOB Gardez to solicit and accept approximately $2,000 per day from local Afghan truck drivers in exchange for permitting the truck drivers to take thousands of gallons of fuel from the base.  Norris admitted that he was personally paid a total of $100,000 over the course of the conspiracy.

Norris and the other soldiers shipped the bribe proceeds back to the United States in tough boxes.  Norris admitted that, after returning from deployment, he purchased a 2008 Cadillac Escalade with $31,000 cash derived from the bribery scheme and a custom built 2014 Hardcore Choppers motorcycle with approximately $30,000 in proceeds from the scheme.

Seneca Hampton, another U.S. Army sergeant, pleaded guilty for his role in the scheme on Feb. 10, 2015, and is scheduled to be sentenced on July 28, 2015.  Anthony Tran, a former U.S. Army specialist, was indicted on March 10, 2015, for his alleged role in the scheme and remains pending trial.  The charges contained in an indictment are merely accusations, and a defendant is presumed innocent unless and until proven guilty.

The case is being investigated by the U.S. Army Criminal Investigation Command, the Office of the Special Inspector General for Afghanistan Reconstruction, the Defense Criminal Investigative Service and the Defense Contract Audit Agency’s Investigative Support Division.  The case is being prosecuted by Trial Attorney John Keller of the Criminal Division’s Public Integrity Section.

Army National Guard Official Pleads Guilty for Accepting $30,000 Bribe

An Army National Guard official pleaded guilty today for accepting a $30,000 bribe in exchange for steering a $3.6 million contract to a retired sergeant major of the Minnesota Army National Guard and his consulting company.  Today’s guilty plea is the eighth in connection with an investigation into corruption within the National Guard Bureau related to the awarding of millions of dollars of Army National Guard marketing, retention and recruitment contracts.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Dana J. Boente of the Eastern District of Virginia, U.S. Attorney Loretta E. Lynch of the Eastern District of New York, Assistant Director in Charge Andrew McCabe of the FBI’s Washington Field Office, Special Agent in Charge Robert E. Craig Jr. of the Defense Criminal Investigative Service (DCIS) Mid-Atlantic Field Office and Director Frank Robey of the U.S. Army Criminal Investigative Command’s Major Procurement Fraud Unit (Army-CID) made the announcement.

Jason Rappoccio, 39, of Hampton, South Carolina, pleaded guilty before U.S. District Judge Liam O’Grady of the Eastern District of Virginia to one count of conspiracy to commit bribery and one count of bribery.  Rappoccio was indicted on Sept. 25, 2014, and will be sentenced on May 22, 2015.

According to plea documents, Rappoccio, who was an active duty sergeant first class in the Army National Guard, admitted to accepting a $30,000 bribe from Timothy Bebus, a retired sergeant major of the Minnesota Army National Guard and owner of Mil-Team Consulting and Solutions LLC (Mil-Team).  In exchange, Rappoccio agreed to recommend the award of a $3.6 million contract to Mil-Team and to steer the contract to a Small Business Administration (SBA) 8(a) certified company, chosen by Bebus, that would sub-contract the work to Mil-Team.

Rappoccio admitted that he received the $30,000 bribe in installments to conceal the payment.  Bebus gave $6,000 in cash directly to Rappoccio at a meeting in Arlington, Virginia.  The remaining $24,000 was paid in a cashier’s check in the name of Rappoccio’s wife.

Rappoccio also admitted that days after receiving the $30,000 bribe, he solicited and received airline tickets for two of his family members from Bebus.  Three months later, Rappoccio also received NFL tickets worth $1,328 from another co-conspirator.  At the time that he accepted these additional benefits, Rappoccio agreed to steer an additional $4 million contract to Bebus and his company.

The case is being investigated by the FBI’s Washington Field Office, with assistance from DCIS’s Mid-Atlantic Field Office and Army-CID’s Expeditionary Fraud Resident Agency’s Major Procurement Fraud Unit.  The case is being prosecuted by Trial Attorney Alison L. Anderson of the Criminal Division’s Fraud Section, Assistant U.S. Attorney Jonathan Fahey of the Eastern District of Virginia and Assistant U.S. Attorneys Marisa Seifan and Martin Coffey of the Eastern District of New York.

Iron Mountain Companies Pay $44.5 Million to Settle Alleged False Billings for Storing Government Documents and Data

Iron Mountain Incorporated and Iron Mountain Information Management LLC (collectively Iron Mountain) has paid $44.5 million to resolve allegations under the False Claims Act that Iron Mountain overcharged federal agencies for record storage services under General Services Administration (GSA) contracts, the Department of Justice announced today.  Iron Mountain is a records storage company headquartered in Boston.

“Protecting the federal procurement process from false claims is central to the mission of the Department of Justice,” said Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division.  “We will continue to ensure that when federal monies are used to purchase commercial services the government receives the prices and services to which it is entitled.”

“This settlement illustrates our commitment to protecting the integrity of federal contracting programs,” said U.S. Attorney Benjamin B. Wagner for the Eastern District of California.  “Federal agencies rely on pricing information under the Multiple Award Schedule program in particular, and deserve the full benefit of applicable contract terms.”

This settlement relates to contracts under which Iron Mountain provided record storage services to government entities from 2001 to 2014 through GSA’s Multiple Award Schedule (MAS) program.  The MAS program provides the government with a streamlined process for procurement of commonly used commercial goods and services.  The settlement resolves allegations that Iron Mountain failed to meet its contractual obligations to provide GSA with accurate information about its commercial sales practices during contract negotiations, and failed to comply with the price reduction clause of the GSA contracts by not extending lower prices to government customers during its performance of the contracts.  It also resolves an allegation that Iron Mountain charged the United States for storage meeting National Archives and Records Administration requirements when the storage provided did not meet such requirements.

“My office will continue working diligently to make sure American taxpayers are getting the best value for every dollar spent,” said Acting Inspector General Robert C. Erickson for GSA.

The civil settlement resolves a lawsuit filed under the whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and obtain a portion of the government’s recovery.  The civil lawsuit was filed in the Eastern District of California by Brent Stanley, a former Iron Mountain employee, and Patrick McKillop, who worked in the records management industry.  Collectively, they will receive $8,010,000.

The settlement with Iron Mountain was the result of a coordinated effort among the U.S. Attorney’s Office for the Eastern District of California, the Civil Division’s Commercial Litigation Branch, the GSA’s Office of the Inspector General, the Defense Criminal Investigative Service, the Defense Contract Audit Agency, the NASA Office of Inspector General, the U.S. Department of Veterans Affairs’ Office of Inspector General, the U.S. Department of Agriculture’s Office of Inspector General, U.S. Army Criminal Investigation Command, and the U.S. Department of Housing and Urban Development’s Office of Inspector General.

The lawsuit is captioned United States ex rel. Brent Stanley and Patrick McKillop v. Iron Mountain Incorporated, Civil Action No. 11-3260 (E.D. Cal.).  The claims resolved by this settlement are allegations only, and there has been no determination of liability.

Defense Contractor Agrees to Pay $27.5 Million to Settle Overbilling Allegations

Lockheed Martin Integrated Systems (LMIS) has agreed to pay $27.5 million to resolve allegations that it violated the False Claims Act by knowingly overbilling the government for work performed by LMIS employees who lacked required job qualifications.

The settlement was announced today by Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division and U.S. Attorney Paul J. Fishman for the District of New Jersey.

“Contractors that knowingly bill the government in violation of contract terms will face serious consequences,” said Acting Assistant Attorney General Branda.  “The department will ensure that those who do business with the government, and seek taxpayer funds, do so fairly and in accordance with the applicable rules.”

“U.S. forces rely on the goods and services provided by defense contractors, so it is imperative the government be able to rely on those contractors to adhere to the rules,” said U.S. Attorney Fishman.  “This settlement should remind all who do business with the government that there is a price to pay for fudging the math.”

LMIS is a subsidiary of Lockheed Martin Inc., which is headquartered in Bethesda, Maryland.  The alleged labor mischarging occurred on the Rapid Response (CR2) contract and the Strategic Services Sourcing (S3) contract, both issued by the U.S. Army Communication and Electronics Command (CECOM).  CECOM is located at Fort Monmouth, New Jersey, and at the Aberdeen Proving Group in Maryland.  The purpose of the CR2 and S3 contracts is to provide rapid access to products and services to be provided to the Army in Iraq and Afghanistan. Individual task orders then are separately negotiated, based on these contracts, to quickly meet the needs of CECOM.  LMIS allegedly violated the terms of the contracts by using under-qualified employees who were billed to the United States at the rates of more qualified employees.  The overbilling allegedly resulted in greater profit for LMIS.

“This settlement demonstrates the commitment of the Defense Criminal Investigative Service (DCIS) and our partners to vigorously pursue alleged violations of the False Claims Act,” said Special Agent in Charge Craig W. Rupert of the DCIS Northeast Field Office.  “All contractors doing business with the federal government are expected to abide by the acquisition rules no matter who they are.  Investigations of such allegations are necessary to protect American taxpayers and our warfighters.”

This settlement was the result of a coordinated effort by the Civil Division, the U.S. Attorney’s Office for the District of New Jersey, the Southern New Jersey Branch of the Defense Contract Audit Agency (DCAA) and the DCAA’s Mid-Atlantic Region’s Comprehensive Labor Team and Investigative Support Team, the U.S. Army’s Criminal Investigative Command’s Major Procurement Fraud Unit and the DCIS.

The claims resolved by the settlement are allegations only and there has been no determination of liability

Federal Contractors Eyak Technology LLC and Eyak Services LLC Resolve False Claims Act and Anti-Kickback Act Allegations

Alaska and Virginia-based technology contractors Eyak Technology LLC (EyakTek) and Eyak Services LLC (ESL) have agreed to pay $2.5 million and relinquish any rights to additional payments from the United States to resolve allegations that they submitted false claims to the U.S. Army Corps of Engineers, the Justice Department announced today.  EyakTek and its sister company, ESL, provide healthcare, information technology, communications and infrastructure services to the U.S. government.  Both are subsidiaries of The Eyak Corporation, headquartered in Anchorage, Alaska.

“Federal government contractors and their employees must adhere to high standards in their dealings with the government,” said Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division.  “We will vigorously pursue those who pay kickbacks or otherwise engage in conduct that undermines the integrity of the contracting process.”

From 2005 to 2011, EyakTek held a $1 billion prime contract with the U.S. Army Corps of Engineers known as the Technology for Infrastructure, Geospatial, and Environmental Requirements contract.

The government alleged that, between Sept. 12, 2007, and Oct. 4, 2011, EyakTek’s then-director of contracts, Harold Babb, accepted kickbacks from several subcontractors of EyakTek and ESL in return for using his position to direct subcontracts to them.  EyakTek and ESL allegedly submitted invoices to the Army Corps that included charges for work that was never performed by the subcontractors and lacked internal controls to detect the improper charges.

In March 2012, Babb pleaded guilty to bribery and kickback charges.  The U.S. District Court for the District of Columbia sentenced him to serve 87 months in prison, to be followed by 36 months of supervised release and more than $9 million in restitution for his role in the kickback scheme.

The Army Corps stopped payments to EyakTek and ESL when the alleged scheme came to light.  As part of the settlement, EyakTek and ESL will withdraw any appeals seeking the return of those funds, and relinquish all rights to any payments that have been withheld.

“This settlement demonstrates our willingness to use every tool of civil and criminal law in our arsenal to defend the American taxpayer from corruption in contracting,” said U.S. Attorney Ronald C. Machen Jr. for the District of Columbia.  “The criminal investigation into this wide-ranging bribery and kickback scheme has now resulted in the convictions of 20 individuals, including EyakTek’s former contracts director.  We have aggressively pursued asset forfeitures in the criminal proceedings to make the taxpayer whole and to deprive wrongdoers of their ill-gotten gains.  This civil settlement sends a message to contractors who try to cheat in the competition for government funds.”

“This is yet another prime example of our commitment, along with other fellow law enforcement agencies to hold people and companies accountable for each and every detail of their contracts with the U.S. government and the U.S. Army,” said Director Frank Robey of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit.  “Our agents will continue to aggressively investigate and identify any potential abuses that arise in regard to the contracting process.”

“Manipulations of the Department of Defense procurement process will not be tolerated,” said Special Agent in Charge Robert Craig for the Defense Criminal Investigative Service (DCIS) Mid-Atlantic Field Office.  “Today’s settlement demonstrates the commitment by DCIS and its partner agencies to hold accountable companies who attempt to bypass federal contracting laws.”

Today’s settlement is the result of a coordinated effort among the department’s Civil Division, the U.S. Attorney’s Office for the District of Columbia, the U.S. Army Corps of Engineers, DCIS, the Defense Contract Audit Agency, the Army’s Major Procurement Fraud Unit and the Small Business Administration.

The claims settled by this agreement are allegations only, and there has been no determination of liability.

Defense Contractor Pleads Guilty to Major Fraud in Provision of Supplies to U.S. Troops in Afghanistan

Supreme Foodservice GmbH, a privately held Swiss company, and Supreme Foodservice FZE, a privately-held United Arab Emirates (UAE) company, pleaded guilty today to major fraud against the United States and agreed to resolve civil violations of the False Claims Act, in connection with a contract to provide food and water to the U.S. troops serving in Afghanistan, the Justice Department announced today.  The companies pleaded guilty in the Eastern District of Pennsylvania (EDPA) and paid $288.36 million in the criminal case, a sum that includes the maximum criminal fine allowed.

In addition, Supreme Group B.V. and several of its subsidiaries have agreed to pay an additional $146 million to resolve a related civil lawsuit, as well as two separate civil matters, alleging false billings to the Department of Defense (DoD) for fuel and transporting cargo to American soldiers in Afghanistan.  The lawsuit was filed in the EDPA, and the fuel and transportation allegations were investigated by the Southern District of Illinois and the Eastern District of Virginia, respectively, along with the Department’s Civil Division.

“The civil resolutions and agreements reflect the Justice Department’s continuing efforts to hold accountable contractors that have engaged in war profiteering,” said Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division.  “The department will pursue contractors that knowingly seek taxpayer funds to which they are not entitled.”

“These companies chose to commit their fraud in connection with a contract to supply food and water to our nation’s fighting men and women serving in Afghanistan,” said U.S. Attorney Zane David Memeger for the Eastern District of Pennsylvania.  “That kind of conduct is repugnant, and we will use every available resource to punish such illegal war profiteering.”

The Criminal Fraud

In 2005, Supreme Foodservice AG, now called Supreme Foodservice GmbH, entered into a contract with the Defense Supply Center of Philadelphia (DSCP, now called Defense Logistics Agency – Troop Support) to provide food and water for the U.S. forces serving in Afghanistan.  According to court documents, between July 2005 and April 2009, Supreme Foodservice AG, together with Supreme Foodservice KG, now called Supreme Foodservice FZE, devised and implemented a scheme to overcharge the United States in order to make profits over and above those provided in the $8.8 billion subsistence prime vendor (SPV) contract.  The companies fraudulently inflated the price charged for local market ready goods (LMR) and bottled water sold to the United States under the SPV contract.  The Supreme companies did this by using a UAE company it controlled, Jamal Ahli Foods Co. LLC (JAFCO), as a middleman to mark up prices for fresh fruits and vegetables and other locally-produced products sold to the U.S. government, and to obscure the inflated price the Supreme companies were charging for bottled water.  The fraud resulted in a loss to the government of $48 million.

Supreme AG, Supreme FZE and Supreme’s owners (referred to in court documents as Supreme Owners #1 and #2) made concentrated efforts to conceal Supreme’s true relationship with JAFCO, and to make JAFCO appear to be an independent company.  They also took steps to make JAFCO’s mark-up on LMR look legitimate, and persisted in the fraudulent mark-ups even in the face of questions from DSCP about the pricing of LMR.

Even though the SPV contract stated that the Supreme food companies should charge the government the supplier’s price for the goods, emails between executives at the companies (referred to as Supreme Executive #1, #2, etc) reveal the companies’ deliberate decision to inflate the prices. Among other things, Supreme Owner #1 increased the mark-up that JAFCO would impose on non-alcoholic beer from 25 percent to 125 percent.  On or about Feb. 16, 2006, during a discussion about supplying a new product to the U.S. government, one Supreme executive wrote to another, “I am very sure the best option is to buy it from Germany and mark up via [JAFCO], like [non-alcoholic] beer.”

In early March 2006, after a DSCP contracting officer told the Supreme food companies that she wanted to see a manufacturer’s invoice for specific frozen products, Supreme Foodservice GmbH lowered its prices for those products to prices that did not include a JAFCO mark-up.  On March 14, 2006, instead of disclosing that the initial pricing had included a mark-up, a Supreme executive misled the DSCP representative by saying, “Based on more realistic quantities, we have been able to negotiate a better price,” to explain the change in pricing.

In June 2006, when a DSCP contracting officer raised questions about pricing focusing on four specific items, Supreme executives again misled the DSCP, claiming that the high prices were for a high quality of product, and offering to sell lower quality products for lower prices.  Supreme Foodservice GmbH did this even after analyzing its JAFCO margin on the four items in question and finding its profit margins were between 41 and 56 percent.

In September 2007, after a fired Supreme executive threatened to tell the DSCP about the fraud, his former employer entered into negotiation of a “separation agreement” with that executive to induce that executive not to disclose the ways in which the Supreme food companies were overcharging the DSCP.  The agreement stated that the executive would receive, among other things, a payment of 400,000 euros in September 2010, provided that the executive did not cause: a deterioration in the economic situation linked to the SPV contract; the termination of the SPV contract; or a decrease in the price levels for products, specifically including LMR and bottled water provided to the U.S. government.

Defendant Supreme GmbH pleaded guilty to major fraud against the United States, conspiracy to commit major fraud and wire fraud.  Supreme FZE, which owns JAFCO, pleaded guilty to major fraud against the United States.  The Supreme companies agreed to jointly pay $48 million in restitution and $10 million in criminal forfeiture.  Each company also agreed to pay $96 million in criminal fines.  In addition, as a result of the criminal investigation, the Supreme companies paid $38.3 million directly to the DSCP as a refund for separate overpayments on bottled water.

The Civil Settlements

In a related civil settlement, Supreme Group agreed to pay another $101 million to settle a whistleblower lawsuit, filed in the U.S. District Court for the EDPA by a former executive, which alleged that Supreme Group, and its food subsidiaries, violated the False Claims Act by knowingly overcharging for supplying food and water under the SPV contract.  The payment also resolves claims that, from June 2005 to December 2010, the Supreme food companies failed to disclose and pass through to the government rebates and discounts it obtained from its suppliers, as required by its SPV contract with the United States.

“Today’s results are part of an ongoing effort by the Defense Criminal Investigative Service (DCIS) and its law enforcement partners to protect the integrity of the Department of Defense’s acquisition process from personal and corporate greed,” said Deputy Inspector General for Investigations James B. Burch for the U.S. Department of Defense’s Office of the Inspector General.  “The Defense Criminal Investigative Service will continue to pursue allegations of fraud and corruption that puts the Warfighter at risk.”

“We are very pleased with this resolution, and are gratified that the public can now see what we’ve been aggressively investigating,” said Director Frank Robey of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit (MPFU).  “Companies that do business with the government must comply with all of their obligations, and if they overcharge for supplying our men and women in uniform who are bravely serving this nation, they must be held accountable for their actions.”

Separately, Supreme Site Services GmbH, a Supreme Group subsidiary, agreed to pay $20 million to settle allegations that they overbilled for fuel purchased by the Defense Logistics Agency (DLA) for Kandahar Air Field (KAF) in Afghanistan under a NATO Basic Ordering Agreement.  The government alleged that Supreme Site Services’ drivers were stealing fuel destined for KAF generators while en route for which the company falsely billed DLA.

“It is important that government contractors supporting conflicts abroad be held accountable for their billings to the government,” said U.S. Attorney Dana J. Boente for the Eastern District of Virginia.  “The DoD investigating components are instrumental in protecting the interests of the government, and their efforts in this investigation are to be commended.”

Supreme Group’s subsidiary Supreme Logistics FZE also has agreed to pay $25 million to resolve alleged false billings by Supreme Logistics in connection with shipping contracts between the U.S. Transportation Command (USTRANSCOM), located at Scott Air Force Base in Illinois, and various shipping carriers to transport food to U.S. troops in Afghanistan during Operation Enduring Freedom.  The shipping carriers transported cargo destined for U.S. troops from the United States to Latvia or other intermediate ports, and then arranged with logistics vendors, including Supreme Logistics, to carry the cargo the rest of the way to Afghanistan.  The United States alleged that Supreme Logistics falsely billed USTRANSCOM for higher-priced refrigerated trucks when it actually used lower-priced non-refrigerated trucks to transport the cargo.

“The U.S. Attorney’s Office for the Southern District of Illinois is committed to protecting the integrity of all of the vital missions carried out at Scott Air Force Base, including the mission of the U.S. Transportation Command,” said U.S. Attorney Stephen R. Wigginton for the Southern District of Illinois.  “These vital services carried out by the brave men and women of the armed forces of the United States deserve, and will receive, our full support, and this office will do everything possible to protect their missions.”

“These settlements are victories for American taxpayers,” said Special Inspector General John F. Sopko for Afghanistan Reconstruction.  “It sends a clear signal that whether a case involves a mom and pop outfit or a major multinational corporation, we will work tirelessly with our investigative partners to pursue justice any time U.S. dollars supporting the mission in Afghanistan are misused.”

The EDPA lawsuit was initially filed under the qui tam or whistleblower provisions of the False Claims Act, by Michael Epp, Supreme GmbH’s former Director, Commercial Division and Supply Chain.  The False Claims Act prohibits the submission of false claims for government money or property and allows the United States to recover treble damages and penalties for a violation.  Under the Act’s whistleblower provisions, a private party may file suit on behalf of the United States and share in any recovery.  The case remained under seal to permit the United States to investigate the allegations and decide whether to intervene and take over the case.  Epp will receive $16.16 million as his share of the government’s settlement of the lawsuit.

The criminal and civil matters in the EDPA were the result of a coordinated effort by the Department of Justice’s Civil Division, the U.S. Attorney’s Office for the Eastern District of Pennsylvania, DCIS, U.S. Army’s Criminal Investigative Command’s MPFU and the FBI.

The investigation of Supreme Site Services ’ alleged false billings for fuel was conducted by the Civil Division and the U.S. Attorney’s Office for the Eastern District of Virginia, and the investigation of Supreme Logistics’ alleged false invoices for transportation was handled by the Civil Division and the U.S. Attorney’s Office for the Southern District of Illinois.  Both matters were investigated by the Defense Contract Audit Agency Office of Investigative Support, the Army Audit Agency, the International Contract Corruption Task Force, the U.S. Army’s Criminal Investigative Command’s Major Procurement Fraud Unit, the DoD Office of Inspector General’s DCIS, the Special Inspector General for Afghan Reconstruction, the U.S. Air Force Office of Special Investigations and the Naval Criminal Investigative Service.

The claims resolved by the civil settlements are allegations only, except for the conduct for which the Supreme food companies have pleaded guilty.

Defense Contractor Agrees to Pay $13.7 Million to Settle Allegations of Overbilling

DRS Technical Services Inc. (DRS) has agreed to pay $13.7 million to settle allegations that it violated the False Claims Act by knowingly overbilling the government for work performed by DRS personnel who lacked the job qualifications required by the contract, the Justice Department announced today.  DRS is located in Herndon, Virginia, and is a subsidiary of DRS Defense Solutions LLC.

DRS designs, integrates, operates and maintains satellite and wireless network solutions and telecommunication services and security systems for government and private sector customers.  DRS C3 & Aviation Company, which is headquartered in Gaithersburg, Maryland, is an indirect subsidiary of DRS and provides services to government agencies, including aircraft maintenance, logistics and depot support, and engineering support.  Between March 2003 and Dec. 31, 2012, DRS and its predecessors were awarded time and materials contracts for services and supplies to be provided to the Army’s Communication and Electronics Command (CECOM) in Iraq and Afghanistan, and to the Coast Guard for aircraft maintenance.

“Contractors that fail to provide qualified labor as promised are not entitled to bill the government as though they had,” said Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division.  “The Department of Justice will pursue contractors that claim taxpayer funds to which they are not entitled.”

The alleged labor mischarging occurred on the Rapid Response or “R2” contract issued by the U.S. Army Communication and Electronics Command (CECOM) located at the Aberdeen Proving Ground in Maryland.  The U.S. Army used the R2 contract to purchase a variety of goods and services needed to support U.S. forces in Iraq, Afghanistan and elsewhere on a quick turnaround basis.  The settlement also resolves labor mischarging on a similar U.S. Coast Guard contract.

The government contends that from Jan. 1, 2003, to Dec. 31, 2012, DRS billed CECOM for work performed by individuals whose job qualifications did not meet all the qualifications prescribed by the contracts for the labor categories under which their efforts were billed, thereby falsely increasing the amount of money DRS claimed and CECOM paid.  Similarly, from Dec. 19, 2009, to Dec. 18, 2011, the government contends that DRS charged the Coast Guard’s Aviation Logistics Center for work performed by individuals whose job qualifications did not meet the qualifications prescribed by the contract, again, thereby inflating the cost of the services provided.

“Companies that submit false bills to the government must be held accountable,” said U.S. Attorney Rod J. Rosenstein for the District of Maryland.

“This settlement is yet another example of the tenacity and hard work of our Army CID agents,” said Director Frank Robey of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit (MPFU).  “It is a testament to MPFU’s continued resolve to hold companies accountable for the work they do for the U.S. government.”

The settlement was the result of a coordinated effort by the U.S. Attorney’s Office for the District of Maryland, the Civil Division, the Defense Contract Audit Agency, the Army’s Criminal Investigative Command’s MPFU and the Department of Defense Office of Inspector General’s Defense Criminal Investigative Service.   

Five Army National Guard Officials and One Civilian Charged with Bribery

Four retired and one active-duty Army National Guard officials and one civilian have been charged for their alleged participation in bribery schemes related to the awarding of millions of dollars of Army National Guard marketing, retention and recruitment contracts.  Two of the retired Army National Guard officials and the civilian pleaded guilty for their roles in the schemes.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Dana J. Boente of the Eastern District of Virginia, U.S. Attorney Loretta E. Lynch of the Eastern District of New York, Assistant Director in Charge Andrew McCabe of the FBI’s Washington Field Office, Special Agent in Charge Robert E. Craig Jr. of the Defense Criminal Investigative Service (DCIS) Mid-Atlantic Field Office and Director Frank Robey of the U.S. Army Criminal Investigative Command’s Major Procurement Fraud Unit (Army-CID) made the announcement.

“As captured by its motto, the Army National Guard is ‘always ready, always there’ for the American people,” said Assistant Attorney General Caldwell.  “Unfortunately, today’s charges expose National Guard officials who were ‘always ready’ to pocket bribes and ‘always there’ to take kickbacks.  In return, the charged officials allegedly subverted the open bidding process and illegally steered millions of taxpayer dollars to the bribe-payers through marketing and advertising contracts.  Corruption should know no place in American government, but least of all in the military that so honorably serves our country.  The Criminal Division is committed to rooting out corruption wherever we find it, including in the military, so that we can ensure that no one is putting the public’s trust up for sale.”

“These criminal charges and guilty pleas reflect our continued commitment to rooting out public corruption wherever it occurs,” said U.S. Attorney Boente.  “The public contracting process should be one of integrity and fairness, and these cases should send a strong message that public corruption will be vigorously prosecuted in the military as well as other areas of government.”

“This investigation has sadly reminded us that even some members of our military are willing to trade on the trust their country placed in them to line their pockets with the profits of corrupt activities,” said U.S. Attorney Lynch.  “We and our law enforcement partners will constantly guard against and root out such corruption wherever we find it.”

Charles Sines, 56, of Stafford, Virginia, a retired colonel from the United States Army National Guard; Wesley Russell, 48, of Albany, Indiana, a retired lieutenant colonel from the Indiana Army National Guard; and Jason Rappoccio, 39, of Hampton, South Carolina, an active-duty sergeant first class from the Army National Guard are charged with conspiracy to solicit bribes and the solicitation of bribes.  Russell and Rappoccio allegedly asked for and received bribes, and Sines allegedly provided bribes.

Robert Porter, 50 of Columbia, Maryland, a retired colonel from the Army National Guard, and Timothy Bebus, 44, of Forest Lake, Minnesota, a retired sergeant major of the Minnesota Army National Guard and owner of Mil-Team Consulting and Solutions LLC, each pleaded guilty in the Eastern District of Virginia in September 2014 to conspiracy to commit bribery and bribery of a public official.  Julianne Hubbell, 45, of Brooklyn Park, Minnesota, a civilian who partnered with her brother, Bebus, as the vice president of operations of Mil-Team, also pleaded guilty in September 2014 to conspiracy to commit bribery.  Sentencing hearings for Bebus and Hubbell are scheduled for Jan. 23, 2015, and for Porter on Jan. 30, 2015.

“The alleged steering of large government contracts is offensive to active duty, reserve and retired members of the National Guard Bureau who took an oath to support and defend the Constitution,” said FBI Assistant Director in Charge McCabe.  “It is also offensive to average American citizens who trust their government and its contractors to use taxpayer money wisely.  We urge anyone who has knowledge of corruption and abuse in federal government contracting to contact the FBI.”

“The Department of Defense places special trust and confidence in its service members, particularly those in positions to influence the expenditure of taxpayer dollars,” said DCIS Special Agent in Charge Craig.  “Guardsmen hold a unique position in our society, representing both their state and military service.  The alleged behavior uncovered in this investigation was a disservice to both, but in no way typical of those honorable women and men that serve in our Army and Air National Guard.  Identifying and investigating fraud and public corruption remains the highest of priorities for the Defense Criminal Investigative Service.  Alongside our law enforcement partners, we will continue to aggressively pursue allegations of fraud impacting Department of Defense resources.”

“We have highly-trained, Army CID special agents who are extremely talented and very capable of rooting out this type of corruption within our ranks,” said Army-CID Director Robey.   “People must realize, both in and out of uniform, that fraud will not be tolerated within the Army and Department of Defense, and greed cannot and will not trump duty and honor.”

As set forth in the indictments and other publicly-filed documents, the National Guard Bureau is a joint activity of the U.S. Department of Defense (DOD), state Army National Guard units and the Departments of the Army and Air Force.  The National Guard Bureau, located in Arlington, Virginia, oversees the distribution of federal funding provided to the Army National Guard and its state units.

The DOD provides millions of dollars of federal funds to the Army National Guard for, among other things, advertising, marketing and sponsorships in order to recruit new members.  The National Guard Bureau uses these funds to promote the Army National Guard by entering into advertising, marketing and sponsorship contracts.  For example, through advertising, marketing and sponsorship contracts, the National Guard was an official sponsor of Dew Tour, Warrior Dash, and American Motorcycle Association Supercross’s events, where recruiters handed out promotional items and recruited new members.  The National Guard also had a contract to sponsor Michael Jordan’s AMA Superbike team.

The National Guard Bureau can avoid a competitive bid process by awarding these federally-funded marketing contracts to Small Business Administration (SBA) certified 8(a) companies, which are minority-owned businesses.  The National Guard Bureau also provides a portion of the federal funds to the state units to allocate.

The indictments allege that Sines and Rappoccio evaded the competitive bid process by using 8(a) companies to award contracts in exchange for bribes.

According to allegations in the indictment against him, Sines founded a company, Financial Solutions, after retiring from the Army National Guard as a colonel.  Sines allegedly paid Porter, a then-active-duty colonel in the Army National Guard, a percentage of all contracts that Porter steered to Financial Solutions through 8(a) companies.  As the director of the National Guard Bureau’s Guard Strength Directorate, Porter had substantial influence over the awarding of National Guard Bureau contracts, and allegedly steered approximately $4.5 million worth of contracts to Sines and Financial Solutions.

The indictment against Russell alleges that, while on active duty as a lieutenant colonel in the Indiana Army National Guard, Russell demanded 15 percent of all profits that a private marketing company would receive from state Army National Guard units.  In return for his 15 percent cut of the profits, Russell allegedly promoted and encouraged state Army National Guard units to purchase the marketing company’s products.

The indictment against Rappoccio, an active-duty sergeant first class in the Army National Guard, alleges that Bebus and Hubbell paid Rappoccio a $30,000 bribe for steering a contract worth approximately $3.7 million to an 8(a) company chosen by Bebus.  In pleading guilty, Bebus and Hubbell admitted to paying this bribe.  In an effort to conceal the bribe payment, Bebus, Hubbell and others allegedly arranged for the payment of $6,000 in cash to Rappoccio, and the remaining $24,000 was allegedly routed from a business account controlled by Hubbell to an account controlled by Bebus and Hubbell’s brother-in-law, and then provided to Rappoccio in the form of a cashier’s check to Rappoccio’s wife.

An indictment is merely an allegation, and the defendants are presumed innocent unless and until proven guilty.

The case is being investigated by the FBI’s Washington Field Office, with assistance from DCIS’s Mid-Atlantic Field Office and Army-CID’s Expeditionary Fraud Resident Agency’s Major Procurement Fraud Unit.  The case is being prosecuted by Trial Attorney Alison L. Anderson of the Criminal Division’s Fraud Section, Assistant U.S. Attorney Jonathan Fahey of the Eastern District of Virginia and Assistant U.S. Attorneys Marisa Seifan and Martin Coffey of the Eastern District of New York.

Allegations of bribery or corruption within the National Guard Bureau’s retention and recruitment contracting can be reported to the FBI’s Washington Field Office at (202) 278-2000 or the FBI’s Northern Virginia Public Corruption Hotline at (703) 686-6225.