[Vision2020] 10-09-04 LMT: Politically connected firm has defrauded millions in Iraqi suit

[Art Deco aka W. Fox]

Politically connected firm has defrauded millions in Iraqi suit


Seth Borenstein of Knight Ridder Newspapers
WASHINGTON -- A politically connected start-up firm, awarded a no-bid contract 
to provide security for Baghdad's airport, defrauded U.S. taxpayers of tens of 
millions of dollars, two top former workers charge in a lawsuit unsealed Friday.

The Bush administration decided not to join the whistleblowers' civil suit 
alleging fraud against the company, run by a former Republican congressional 
candidate. The whistleblowers' attorney said a Justice Department lawyer told 
him the reason was that the alleged victim was the U.S.-financed and led 
Coalition Provisional Authority, not the U.S. government.

Justice Department spokesman Mark Corallo said the department didn't comment on 
why it declined to join such suits.

It's unusual for the Justice Department to decline to join a suit that has a 
load of documents and when criminal prosecution is likely, said Patrick Burns, a 
spokesman for Taxpayers Against Fraud, a group that monitors citizen suits.

Sept. 30, the Defense Department put the firm, Custer Battles LLC of Fairfax, 
Va., on a list that bans it from getting federal contracts, citing "adequate 
evidence of the commission of fraud, antitrust violations, embezzlement, theft, 
forgery, bribery, false statements or any other offenses indicating a lack of 
business integrity."

The two whistleblowers said they'd been in contact with Justice and Defense 
Department investigators about an ongoing criminal investigation. Both agencies 
said they didn't comment on or confirm the existence of ongoing investigations.

"We don't think the allegations have any merit," Custer Battles attorney Richard 
Sauber said late Friday. He blamed them on "a disgruntled employee and a 
competitor" and said the government's not joining the case was a sign of "no 
credible evidence." He said Custer Battles wasn't given a chance to explain what 
happened before the Defense Department suspended it and that the firm disputed 
the charges.

The whistleblowers -- Robert J. Isakson, a former FBI agent who investigated 
white-collar crime and was managing director for a Custer Battles partner, and 
W.D. "Pete" Baldwin, Custer Battles' former in-country manager -- charged that 
Custer Battles set up four shell companies in the Cayman Islands, Beirut, 
Lebanon and Cyprus to help inflate bills that were passed on to taxpayers.

"It's a crying shame for somebody to go into fraud against the United States in 
the middle of a war," Isakson told Knight Ridder on Friday.

Experts in contracting said the firm had little business and few employees until 
it got the Iraq contract in 2003, then it exploded into more than $100 million a 
year in revenues. Its founders are Scott Custer, a former Army Ranger and 
defense consultant, and former CIA officer Michael Battles, who ran for Congress 
from Rhode Island in 2002 as a Republican.



Even though it was a new company, Custer Battles got a no-bid $16.8 million 
contract on July 1, 2003, to secure Baghdad's airport, according to the CPA's 
inspector general. The contract was cost-plus, meaning the firm passes along all 
its costs, plus a percentage profit.

Isakson and Baldwin said -- and provided lease documents as proof -- that Custer 
Battles set up shell companies to inflate the costs of cabins, trucks and other 
items to get more money from the government.

Isakson, at the time the managing director for Custer Battles' partner DRC Inc., 
helped Custer Battles set up operations in Iraq. When he told the company that a 
cost-plus contract wouldn't bring much profit in a war zone because such 
contracts generally are capped at around 5 percent, he said, the firm's 
officials told him they planned to form shell companies and buy or lease 
products from them to Custer Battles at higher prices.

Isakson said he was isolated after he objected. In July 2003, when he'd finished 
setting up the company's camp at the airport, he said, two men armed with 
submachine guns, whom he's identified as top company officials, detained him, 
his 13-year-old-son and his brother. He said they took his money, identification 
and gun, and left them on their own to get out of war-torn Iraq.

Days after Isakson left, Baldwin showed up and soon was hired to be Custer 
Battles' in-country manager.

"It was quite a nightmare," Baldwin said in a phone interview from Baghdad, 
where he started his own firm after quitting Custer Battles last March.

Baldwin said setting up shell companies in themselves wasn't wrong, but that 
inflating prices and telling the government that Custer Battles couldn't get 
receipts to justify the higher prices was, and that he refused to do it.



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