Fraud in Corps of Engineers contracting charged

Strip away the shell companies and complex wire transfers, and what federal prosecutors on Tuesday called “one of the most brazen corruption schemes in the history of federal contracting” was really quite simple.

First, officials at the Army Corps of Engineers and technology company representatives got together and agreed to file inflated invoices for federal contracting services, prosecutors said.

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How it allegedly worked

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Then they bought millions of dollars worth of BMWs, Rolex and Cartier watches, flat-screen televisions, first-class airline tickets and investment properties across the globe. Until they were arrested Tuesday, authorities said, they had their sights on another contract, one worth $780 million.

Four men — two program managers at the corps, a son of one of them and the director of contracts at a Dulles technology firm — were indicted on corruption-related charges that were made public Tuesday.

The arrests revealed what authorities described as one of the most audacious bribery scams they have investigated. With little oversight, corps officials and contractors easily manipulated an arcane and complex contracting system on a scale rarely seen, allowing them to fleece the government of about $20 million, authorities said.

“The scheme was staggering in scope,” said Ronald C. Machen Jr., U.S. attorney for the District of Columbia. “It surprised all of us.”

Authorities learned of the alleged scam this year while investigating another contracting fraud. Their attention soon centered on the actions of two corps program managers who specialized in contracting, Kerry F. Khan, 53, of Alexandria and Michael A. Alexander, 55, of Woodbridge, and their connections to Harold F. Babb, 60, director of contracting at a Virginia-based firm.

Khan; his 30-year-old son, Lee; Alexander; and Babb were charged with wire fraud, bribery and money laundering. After pleading not guilty to all charges, they were ordered held until a hearing scheduled for Thursday in the District’s federal court.

Attorneys for the men declined to comment or could not be reached Tuesday.

Babb, who lives in Sterling, worked for EyakTek, a company with offices in Dulles and Anchorage that could take advantage of its status as an Alaska native-owned company to obtain contracts of unlimited size without competition. A 2010 investigation by The Washington Post found that some native corporations regularly served as pass-through companies, securing contracts and then turning to larger, more established firms to do the work.

In this instance, prosecutors say, EyakTek obtained a contract from the corps to provide information technology and software security services. Because EyakTek often relies on subcontractors, it sought another firm for the job.

Starting in 2007, the two corps program managers and Babb began steering that work to a Chantilly-based firm identified in court papers as “Company A.” That company’s chief technology officer, called an “unindicted co-conspirator” in court papers, then began filing inflated invoices for work to EyakTek, which passed the bills to the government.