A former manager for a Halliburton Co. subsidiary and an alleged accomplice in Kuwait defrauded the U.S. government out of nearly $4 million by inflating the price of supplying fuel tankers for military operations in Kuwait in 2003, prosecutors said yesterday.
The 10-count indictment, returned Wednesday by a federal grand jury in Illinois, is believed to be the first criminal case of contracting fraud stemming from the war in Iraq, officials said. Halliburton, which Vice President Cheney headed from 1995 to 2000, is one of the government's largest contractors there.
Jan Paul Miller, the U.S. attorney for the Central District of Illinois, said in an interview that the investigation began about a year ago after Kellogg Brown & Root Inc., which holds a giant logistics contract to supply military needs in the Middle East, informed the government it had suspicions of wrongdoing.
According to the indictment, Jeff Alex Mazon, 36, who worked for KBR in Kuwait, schemed with Ali Hijazi, of La Nouvelle General Trading & Contracting Co., to assure La Nouvelle would win a contract for storing and dispensing fuel at a military airport in Kuwait. KBR had estimated the work would cost about $685,000, and La Nouvelle bid $1.67 million, the government said. Mazon then allegedly inflated that and another bid by a factor of 3.3 and awarded the contract to Hijazi's firm for $5.5 million -- nearly $4 million more than the company's original bid.
Around September 2003, soon after Mazon left KBR, Hijazi allegedly gave Mazon a $1 million check for his favorable treatment of La Nouvelle. The indictment said the two men used a promissory note to make the payment appear to be a loan.
Each man was charged with four counts of fraud against the United States and six counts of wire fraud.
Mazon, who was arrested Wednesday in Georgia, appeared in court yesterday in Atlanta before being sent to Illinois for an arraignment hearing, according to Sharon Paul, a spokeswoman for Miller's office. An Army command in Rock Island, Ill., administered the logistics contract.
Mazon's attorney, John Scott Arthur, couldn't be reached for comment. Hijazi, who has not been arrested, didn't respond to an e-mail to the La Nouvelle office in Kuwait.
Democrats in Congress have criticized Halliburton's work supporting the war in Iraq, especially a separate $2.5 billion no-bid contract to repair oil fields. Auditors turned up $1.8 billion in "unsupported costs" in the $10.5 billion logistics contract cited in the indictment, which KBR won on a competitive bid. Despite those findings and a recommendation to withhold some of the payments, the Army decided last month to continue paying Halliburton in full, plus performance bonuses.
"The key issue here is self-disclosure and self-reporting," Halliburton spokeswoman Wendy Hall said in an e-mailed statement about the indictment. "Again, it was Halliburton's own internal rigorous system of checks and balances that identified the irregularity. We found it quickly, and immediately reported it to the Inspector General. We do not tolerate this kind of behavior by anyone at any level in any Halliburton company."