Lawmakers Told About Contract Abuse in Iraq


By Griff Witte

Washington Post
February 15, 2005

A government contractor defrauded the Coalition Provisional Authority of tens of millions of dollars in Iraq reconstruction funds and the Bush administration has done little to try to recover the money, an attorney for two whistle-blowers told Democratic lawmakers yesterday. The lawyer, Alan Grayson, represents two former employees who charged in a federal lawsuit that the security firm Custer Battles LLC of Fairfax was paid approximately $15 million to provide security for civilian flights at Baghdad International Airport, even though no planes flew during the contract term. Grayson said the firm received $100 million in contracts in 2003 and 2004, despite a thin track record and evidence the government was not getting its money's worth.

A former Coalition Provisional Authority official who briefly oversaw the airport security contract also spoke, depicting a temporary governing body awash with cash but lacking in the necessary controls to ensure that money generated from the sale of Iraqi oil actually went to rebuilding the country. "I wish I could tell you that the Bush administration has done everything it could to detect and punish fraud in Iraq," Grayson said. "If I said that to you, though, I would be lying."

The Pentagon has suspended Custer Battles from receiving new contracts, but Grayson said the Justice Department declined last fall to help pursue the case, now pending in federal court in Alexandria. Lawyers representing Custer Battles have denied the charges and have argued that the case should be dismissed because the money that was allegedly stolen belonged to Iraqis, not to Americans. Grayson said that argument has the potential to turn Iraq during the authority's administration of the country into "a fraud-free zone," with contractors not subject to Iraqi or American law.

Yesterday's appearances were organized by the Democratic Policy Committee. Its chairman, Sen. Byron L. Dorgan (D-N.D.), said the witnesses were called in response to a recent report by the inspector general for Iraqi reconstruction that concluded that the governing authority had inadequate controls over $8.8 billion in Iraqi funds it was supposed to oversee. Former administrator L. Paul Bremer has denied those allegations. Dorgan said Democrats had attempted to get Republican colleagues to hold hearings on the issue but were unsuccessful. "There is a massive amount of waste, fraud and abuse going on here, and nobody seems to care very much," Dorgan said.

Rep. Thomas M. Davis III (R-Va.), chairman of the House Government Reform Committee, said in an interview that he found some of yesterday's allegations "disturbing." He said his committee has already held hearings on the use of reconstruction funds in Iraq and plans to hold more. "If there's something wrong, we will go after it vigorously," he said.

The former authority official, Franklin Willis, who advised Iraqi ministries on aviation issues, said it soon became clear Custer Battles was not carrying out its obligations. But Willis said the body's contracting officials were stretched far too thin. On at least two occasions, Willis said, the firm was paid $2 million from a vault in the authority's basement, served up in $100,000 plastic-wrapped bricks of cash. "We called in Mike Battles and said, 'Bring a bag,' " Willis said.

Michael Battles and Scott K. Custer, both former U.S. Special Operations soldiers, founded the company in 2002. Battles ran unsuccessfully as the Republican candidate for Congress in Rhode Island that year. After an interview with Custer in January 2004, agents from the Pentagon inspector general's office wrote, "Battles is very active in the Republican Party and speaks to individuals he knows at the White House almost daily, according to Custer." A White House spokesman had no immediate comment.

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