A Maryland freight transportation company that helped ship billions of dollars worth of U.S. military equipment to Egypt, pleaded guilty yesterday in U.S. District Court in Alexandria to failure to report profits on the deal to federal authorities.
As part of a plea agreement with prosecutors, Air Freight International, immediately paid a $10,000 fine and also paid $1 million to settle civil claims with federal agencies involving the shipments.
Air Freight is a subsidiary of R.G. Hobelmann & Co., a Baltimore freight forwarder.
Air Freight has also agreed to drop five civil cases it filed in federal court in connection with money it claimed was owed on the foreign arms shipment deal.
Air Freight and the Hoblemann firm contracted with the Egyptian American Transport and Service Co. (Eatsco) in 1979 to handle the shipment of U.S. arms to Egypt.
The deal was part of a military sales agreement between the two countries in which the United States lent the financially strapped Egyptian government the money to both buy and ship the equipment.
Under the terms of the agreement, transportation costs were to be reimbursed to Eatsco by the federal government based on costs shown in shipment invoices, which were supposed to disclose profits from shipping, packing and consolidation costs.
Last July, Eatsco president Hussein K.E.I. Salem pleaded guilty in federal court to agreeing with the Hobelmann company to intentionally file inflated cost statements with the U.S. Defense Department. Salem admitted collecting $8 million in overpayments and, as part of a plea agreement, paid the U.S. more than $3.4 million in reimbursements and fines.
Yesterday, Assistant U.S. Attorney Ted Greenberg said that if the case against Air Freight had gone to trial, the government could prove that the company conspired with Eatsco to inflate costs and thereby hide profits.
John G. Kester, an attorney for Air Freight, denied the government's charge and told Judge Richard L. Williams that the company "simply stated in the bill the amount owed." Kester acknowledged in court that Air Freight failed to specify what portions of the bills were profit "and that is the only thing AFI admits to in this whole thing."
In a statement yesterday Air Freight said it kept its profits confidential on its invoices so not to "inform competitors."