A U.S. official working in Iraq accepted $546,000 in illegal payments for steering more than $13 million in contracts last year to an American businessman, the Justice Department alleged in the first criminal corruption case arising from Iraq reconstruction.
Robert J. Stein Jr., who worked for the U.S.-led Coalition Provisional Authority, and Philip H. Bloom, who ran several companies from a base in Romania, were arrested earlier this week on the basis of criminal complaints citing fraud, money-laundering and conspiracy charges. The allegations were outlined in affidavits unsealed in federal court.
The rebuilding of Iraq has been controversial since the start. More than $20 billion in U.S. funds have been set aside for the work. Some members of Congress have challenged no-bid contracts awarded to companies such as Halliburton Corp., while federal auditors have found that the CPA was lax in overseeing billions of dollars in Iraqi funds from the sale of oil and cash transferred from the United Nations.
"There's more to come" in the way of criminal charges, Ginger Cruz, the deputy special inspector general for Iraq reconstruction, said in an interview yesterday. Stein and Bloom have not been indicted by a grand jury, and Cruz said the investigation is continuing. She said her office is looking into 50 other potential criminal cases on the spending of U.S. and Iraqi funds in the war zone.
According to affidavits filed by government investigators, the two men allegedly conspired, starting in late 2003, to rig bids on contracts in the south-central region of Iraq from a CPA office in Al Hillah. Stein was the controller and funding officer at that office, in charge of some $82 million from the Development Fund for Iraq, which is made up of repatriated assets, receipts from the sale of Iraqi oil and transfers from the U.N. oil-for-food program.
In the first six months of last year, the affidavits claim, Stein and another, unidentified official, who has admitted receiving illegal payments and is cooperating with authorities, used phony bids to ensure that Bloom's companies got at least $3.5 million for work on nine contracts. The work awarded to Bloom included one contract for demolishing a Baath Party headquarters in Al Hillah and another to renovate a library in Karbala, providing it with new furniture and Internet service.
Stein structured the contracts so that none exceeded $500,000, the limit of his contracting authority, to avoid scrutiny by higher-level CPA officials and auditors, the government alleged. He also made large payments to Bloom on forms designed for expenditures of $15,000 or less, it said.
In return, the affidavits claim, Bloom made, or arranged for, $546,000 in transfers from overseas accounts to Stein and his wife, or to third parties on Stein's behalf. Federal agents say they have traced the payments to purchases of items such as real estate, cars and jewelry.
Stein pleaded guilty in 1996 to federal fraud charges and was sentenced to eight months of prison and required to make restitution of $45,000 to a financial institution. A footnote in the affidavit said that a $200 payment from Bloom in January 2004 was routed to a federal court clerk in North Carolina for part of that restitution.
Bloom's lawyer, Richard A. Mintz, said yesterday that he was still reviewing the charges and had no comment. Stein could not be reached for comment. In a news release yesterday on the case, the Justice Department noted that a criminal complaint is "only a charge and not evidence of guilt."
Cruz said that the criminal investigation started eight months ago with a "hotline" tip that led auditors to review DFI contracts and grants from the CPA's south-central office. Auditors checking some of Bloom's contracts found shortcomings with the work, she said, including the use of plastic instead of upholstered furniture and no sign of any Internet connections at the Karbala library.
She credited a task force called Spitfire, made up of several law enforcement agencies, including the Bureau of Immigration and Customs Enforcement, the Internal Revenue Service and the Department of State's inspector general office, as well as Justice prosecutors.
Cruz also said she hoped the charges would send "a strong message" to an Iraqi government that is "trying to build its own anti-corruption" forces.
Rep. Henry A. Waxman (D-Calif.), a longtime critic of the U.S. contracting in Iraq, said in an interview yesterday that the charges illustrated what he called the Bush administration's "non-existent oversight" of the spending of Iraqi funds. He said that while the Republican-controlled Congress has held 13 hearings on the U.N. oil-for-food scandal involving Saddam Hussein, it has held only one hearing on the spending of reconstruction funds, and he urged more.
The issue of U.S. jurisdiction over Iraqi funds has come up before. A federal judge in Alexandria ruled this summer that a civil fraud case against another contractor could continue, but he rejected a Justice Department claim that U.S. fraud law applied to the DFI because the U.S. government was responsible for the Iraqi funds.
The charges don't require that the money involved be from federal coffers, said Charles Tiefer, a government contracting professor at University of Baltimore School of Law, noting the debate in the civil fraud case against a security firm called Custer Battles LLC.
"They've read the Custer Battles case, and they don't want to have a Custer Battles problem," he said. "There has been some complaining abroad or by Iraqis that the United States isn't doing enough to protect the integrity of Iraqi money," Tiefer said. "This is an important statement by the U.S. government's law enforcement authority that they will exercise their power to punish" alleged wrongdoing.
Staff researcher Richard Drezen contributed to this report.