The invoice lists $12,000-a-month trucks, $5,000-a-month buses and $2,000-a-month forklifts -- all of which a Cayman Islands-based company said Custer Battles LLC leased from it for contract work in Iraq. The total due: $1,394,000.
Fairfax-based Custer Battles submitted a bill to the U.S.-led Coalition Provisional Authority in October 2003, seeking reimbursement for Secure Global Distribution Inc.'s charges and more. Custer Battles also billed for millions in charges from other offshore companies with names like Mid East Leasing, of the Caymans, and CBL, of Lebanon, plus a 25 percent fee for overhead and profit.
Pentagon investigators would later conclude that the three companies were all Custer Battles subsidiaries. And according to a whistle-blower suit moving through federal court in Alexandria, they acted as little more than shells designed to bilk the CPA of money through phony invoices that made it look like Custer Battles was spending more than it did to fulfill a contract in Iraq. By inflating its bills, the whistle-blowers claim, Custer Battles was also able to inflate its profit.
The company denied the charges in court papers. Its lawyer said that the contract was based on fixed fees and that the invoices didn't affect Custer Battles's profit.
Hundreds of pages of documents provided to The Washington Post by the whistle-blowers' lawyers provide a fuller picture of the allegations at the heart of the lawsuit, which is the first involving allegations of fraud by contractors in Iraq to become public. They cover a period in the first months after the U.S. invasion when the fledgling security firm became a key contractor in the government's attempt to restore order in Iraq.
Scott K. Custer, a former Army Ranger, and Michael J. Battles, a former CIA agent and unsuccessful Republican candidate for Congress, founded the firm in 2002. Their break came a year later when the company won a $16.8 million contract to provide security at Baghdad International Airport after Saddam Hussein's fall. Later that year, the company won a $9.8 million contract to provide logistics support as the CPA switched Iraq to a new currency. That contract eventually was worth $21 million.
The Air Force banned Custer Battles from new federal contracts last year, citing evidence of fraud. A lawsuit by two men who worked for Custer Battles in Iraq also was unsealed last year; the Justice Department has declined to join that case.
If the lawsuit succeeds, the government will get back up to three times the initial fraud amount and the whistle-blowers will get a share of the award.
Among the documents provided by the whistle-blowers' attorneys are two invoices for the same item. A helipad cost the company $96,000 when it was purchased through a non-Custer Battles subsidiary. A second invoice shows the company buying a helipad from Laru Ltd., which one of the whistle-blowers said was partly owned by Custer Battles, for $157,000. Custer Battles billed the government for the $157,000, though Laru didn't do the work, Pentagon investigators found.
In addition, a spreadsheet that Custer and Battles allegedly left at a meeting with government investigators shows two columns, "actual cost" and "invoiced" cost. In almost every case, the invoiced costs are substantially higher. For example, generators that cost $74,000 were invoiced for $400,000, and $240,000 for trucks became $600,000 in bills, according to the spreadsheet.
"This is a company that set out right from the beginning to cheat the government. They did it in a way that was recognizable almost immediately. Yet the government paid the invoices," said Alan Grayson, a lawyer for the whistle-blowers.
Custer Battles attorney Richard Sauber denied that the spreadsheet was a company document. He also said that the offshore invoices don't show evidence of fraud because Custer Battles was operating under a contract that provided a set fee, no matter what the costs.
