Kuwaiti Company Indicted for Massive Overcharging of United States for
Soldiers' Food
Company Received over $8.5 Billion for Food Supply Contracts; Now Indicted for
Conspiracy and Major Fraud
ATLANTA, Nov. 16 /PRNewswire-USNewswire/ -- Public Warehousing Company,
K.S.C., (PWC) a logistics company organized under the laws of the Nation of
Kuwait has been indicted by a federal grand jury 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 is scheduled for an initial appearance and arraignment before
U.S. Magistrate Judge Janet F. King in Atlanta at 9:30 a.m. on Nov. 20, 2009.
A related civil action has also been filed against PWC.
Criminal 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."
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."
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 Feb. 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.
All three contracts used the same pricing formula: Delivered Price + Fixed
Distribution Fee = Unit Price. The "Delivered Price" (also called the product
price or landed cost) was the manufacturer/supplier's actual invoice price.
The Distribution Fee included all expenses that PWC incurred in performing the
prime vendor contracts, as well as its profit, and represented the only amount
that PWC contractually was allowed to add to the Delivered Price to arrive at
a product's Unit Price.
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 was a
required part of the proposal process for the award of a PV-II that each
offeror provide DSCP with a Delivered Price and proposed Distribution Fees for
a specified list of Market Basket items (in this case 70 items). While
Delivered Prices may change over time (the contract allows Delivered Prices to
change every two weeks), evaluation of the Market Basket Delivered Prices
enabled DSCP to compare and evaluate offerors on the criteria of Delivered
Price at one point in time. 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.
Count two alleges that as part of PWC's fraudulent conduct, its related
Kuwaiti subcontractor T.S.C., with PWC's knowledge and approval, allegedly
inflated or "marked-up" the prices of local market ready items and fresh fruit
and vegetables to amounts that exceeded even retail prices and then after PWC
paid T.S.C.'s inflated invoice in total, kicked a part of the T.S.C. mark-up
back to PWC in the form of a 10 percent rebate, none of which was returned to
the United States.
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.
This is a continuing investigation. Anyone with information that may be
useful to the investigation, including but not limited to any aspect of the
provision of services and billing to the United States by PWC pursuant to the
PV food contracts, should contact the Department of Defense via the Department
of Defense Hotline, toll-free, at (800) 424-9098, via e-mail at
hotline@dodig.mil, or on the internet at http://www.dodig.mil/hotline. In
addition, persons may call the FBI Atlanta Field Office at (404) 679-9000.
Members of the public are reminded that the indictment contains only
allegations. A defendant is presumed innocent of the charges, and it will be
the government's burden to prove a defendant's guilt beyond a reasonable doubt
at trial.
This case is being investigated by a joint investigation team of Special
Agents of Defense Criminal Investigative Service, FBI, Army Criminal
Investigation Command (Army CID), auditors from the Defense Contract Audit
Agency, and the Department of Defense, Office of the Inspector General.
Assistant U.S. Attorney Barbara E. Nelan and Special Assistant U.S. Attorney
Richard E. Reed are prosecuting the case. Assistance in this case is also
being provided by Counsel with the Department of Justice's National
Procurement Fraud Task Force and the Office of International Affairs.
SOURCE U.S. Department of Justice
Patrick Crosby of the Office of United States Attorney Sally Quillian Yates,
Northern District of Georgia, +1-404-581-6016, FAX +1-404-581-6160
