Kuwaiti firm indicted for massive overcharging of United States for soldiers’ food

November 21, 7:46 AMLaw Enforcement ExaminerJim Kouri

Public Warehousing Company, a logistics company organized under the laws of the Nation of Kuwait, has been indicted by a federal grand jury in Atlanta, GA, on multiple charges of conspiracy to defraud the United States, committing major fraud against the United States, making false statements, submitting false claims and wire fraud.

All of the charges concern multi-billion dollar contracts issued by the Department of Defense for feeding American troops in Iraq, Kuwait and Jordan. PWC officials made an initial appearance and were arraigned before U.S. Magistrate Judge Janet F. King in Atlanta on Friday, November 20, 2009, according to a report obtained by the National Association of Chiefs of Police's White Collar Crime Committee.

Criminal Division Chief F. Gentry Shelnutt, who is currently serving as the Acting U.S. Attorney on this case, said, “This indictment is the result of a multi-year probe into abuses in vendor contracts in the Middle East involving the illegal inflation of prices in contracts to feed our troops. The indictment alleges PWC submitted false information and manipulated prices to overcharge for food. Others who have engaged in similar conduct should beware. This indictment is only the first step. Our investigation of entities and persons who have defrauded the United States and our military is ongoing.”

In Arlington, Va., Sharon E. Woods, Director, Defense Criminal Investigative Service said, “The Pentagon’s Defense Criminal Investigative Service will aggressively pursue any and all allegations of fraud and abuse perpetrated on the U.S. Department of Defense. Our constant focus is on ensuring taxpayer dollars are not wasted or stolen, and on protecting America’s warfighters.”

Brigadier General Rodney Johnson, the commander of U.S. Army Criminal Investigation Division, said, “These indictments are the culmination of the steadfast dedication and professionalism of our Special Agents, the FBI and other law enforcement counterparts. I am proud that U.S. Army CID could play a major role in bringing this case to justice. The defendants, tempted by monetary gain, betrayed the trust invested in them by the U.S. Army and now they must face the consequences.”

The indictment charges PWC in six counts. Count one charges PWC and unidentified co-conspirators with conspiracy to defraud the United States, including committing major fraud against the United States and making and submitting false statements to the United States. Count two charges PWC and unidentified coconspirators with a second conspiracy to defraud the United States, including committing major fraud against the United States, making and submitting false, fictitious or fraudulent claims to the United States, making false statements to the United States and wire fraud. Counts three and four are substantive major fraud charges brought against PWC, and counts five and six are substantive wire fraud charges.

According to the charges and other information presented in court: PWC offered proposals and was awarded a Prime Vendor contract on May 28, 2003 (PV-I), on February 16, 2005 (Bridge), and on July 7, 2005 (PV-II). Each of these contracts was a prime vendor contract for the provision of food and other items to military customers in the Middle East, including Iraq, Kuwait and Jordan. PWC has been paid over $8.5 billion for the contracts.

The conspiracy alleged in count one is based upon PWC allegedly providing false invoices and statements to the Defense Supply Center Philadelphia (DSCP), a troop support center component of the Defense Logistics Agency, which is a logistics combat support agency within the Department of Defense. DSCP is the center for managing the purchase and acquisition of four major commodities, including subsistence/garrison feeding, used to support the U.S. military throughout the world.

In count one, PWC, along with others, is charged with conspiring to submit false information and documents to DSCP with regard to the Delivered Prices of Market Basket items as part of its proposal for the award of PV-II.  It is alleged in count one that PWC’s submission of false Market Basket Pricing information was done to impair and pervert the functioning of DSCP in its evaluation of proposals, and later to conceal the use of such false statements and documents.

The conspiracy alleged in count two is based upon PWC’s allegedly fraudulent overbilling of the United States through multiple means. The multiple means alleged include the following:

• The first means alleged in count two is that PWC allegedly intentionally failed to purchase less expensive food items based upon a vendor’s failure to provide PWC with a discount.
• The second means alleged in count two relates to PWC’s alleged fraudulent overbilling of the United States by having vendors use a consolidation facility and placing the consolidation costs plus a PWC profit into the Delivered Price paid by the United States contrary to the prime vendor contracts.
• The third means alleged in count two relates to PWC’s knowing manipulation and inflation of Delivered Prices. Examples of this manipulation include PWC’s knowing participation in structuring billings from vendors so that non-product costs that were supposed to be paid by PWC, instead were hidden in the Delivered Price of the products, resulting in the submission of inflated and fraudulent claims to the United States. Count two also alleges that PWC received product rebates, allowances, and discounts that PWC did not return to the United States as required by the prime vendor contracts.

Count two also alleges that PWC insisted that vendors provide a discount to it and label that discount something other than what it was to facilitate PWC not passing the discount on to the United States. Examples of this fraudulent conduct noted in the indictment include:
 

• asking a vendor for a “prompt payment discount ” in exchange for making that vendor a “preferred customer” and then providing that vendor with more business because of the discount.
   
• asking a vendor for a “prompt payment discount” and when the vendor refused, instead securing a discount that was labeled a “damage allowance.”
   
• asking a vendor to increase its “prompt payment discount” and when the vendor agreed to do so, providing the vendor with more business.
   
• using a vendor’s volume-based growth incentive program to pay consolidator costs that should have been paid by PWC and to give PWC a “prompt payment discount,” rather than returning the growth incentive to the United States or reducing the prices to the United States.

Count two also charges that PWC fraudulently inflated the Distribution Fees that it billed to the United States by asking vendors to manipulate the way products were packed, thus enabling PWC to bill the United States twice as much as it should have.

Counts three and four charge substantive counts of major fraud against the United States alleging schemes to defraud the United States and obtain money and property from the United States by means of false or fraudulent promises and representations with respect to “PV-I” and “PV-II,” both of which are prime contracts with values of at least $1,000,000.

Specifically, Count three charges PWC with a fraudulent scheme to persuade a vendor located in Rome, Ga., to reduce the pack sizes of products that it sold to PWC, thus enabling PWC to bill the United States for twice as many packs of products and thus collect twice as much in Distribution Fees for the same amount of product.

Count four alleges a fraudulent scheme by PWC in which it encouraged a vendor with facilities in Conyers, Ga., to conceal consolidation fees that should have been paid by PWC in the prices of the products that it sold to PWC, thus resulting in inflated Delivered Prices being billed to the United States.

Counts five and six charge substantive counts of wire fraud, relating to the use of interstate wires with respect to the fraudulent scheme described in Count four involving the company with facilities in Conyers.

As a corporate defendant, PWC faces a sentence of probation and a fine of up to twice the pecuniary gain realized by PWC, or twice the loss to the United States.

FBI Atlanta Special Agent in Charge Greg Jones said, “The FBI is well-suited to the task of investigating such extensive government fraud cases. It is very unfortunate that established companies that have contracted to do business with the U.S. Government would abuse this relationship by falsifying and overcharging the billing to the government."

"It is more unfortunate that this company chose to do so when these funds are in such demand for other support and equipping of our U.S. troops in various combat zones around the world. We are committed to continuing the necessary work with our law enforcement and military partners in pursuing this and other such acts of government or defense contractor fraud,” he said.