Tag Archives: government fraud

GSA SAM Registration Hackers Used Spearphishing

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SAM_logo

Spearphishing

 

 

 

 

“FEDSCOOP”

“It’s unclear how much the scammers have netted through their scheme, which is being investigated by the GSA inspector general and federal law enforcement.

GSA’s System for Award Management, or SAM.gov, didn’t provide two-factor authentication or use an email protocol designed to protect against incoming emails with spoofed domain names in their addresses. “


“Cybercrooks who stole federal payments by hacking contractor accounts on a GSA website used sophisticated spearphishing techniques to steal login credentials and then diverted payments to bank accounts they controlled, an executive of a contractor targeted in the scam told FedScoop.

The inspector general’s office declined to comment, but sources familiar with the investigation told FedScoop that the cyberattacks that facilitated the fraud had been identified last year and were ongoing as recently as last week.

Targeting was also aided by the rich data the website provided.

The scammers “didn’t need to do any reconnaissance or research, the usual kind of social media engineering” to find out who at each company controlled the SAM.gov account, the executive said. “SAM.gov handed them the targeting intelligence they needed for the campaign.”

The public website has a search function that enables visitors to identify the point of contact for any company with an account on the site — which contractors can use to manage the payments they receive under federal contracts.

“It’s a spearphishing guide,” said the executive, who asked not to be identified because of the sensitive nature of the case. The emails sent to the points of contact “were very high quality,” said the executive, adding that they appeared to come directly from SAM.gov and contained a message asking recipients to click on a link to a fake login page. “It was a high quality facsimile of the real page,” the executive said. When the recipient entered their username and password, the page harvested them, then redirected the user to the real site, along with random login data.

“What you see next [after entering your information] is the real login page with the error message, so you think you’ve fat-fingered it,” explained the executive.

Having harvested the credentials for the account administrator, the hackers were able to login and use the site’s management functions to change the bank accounts into which federal payments were delivered.

Security experts say such attacks can be prevented by at least two baseline best practices that SAM.gov lacked:

● Two-factor authentication (2FA) — requiring the user to identify themselves via a secure hardware token or one-time passcode sent to their mobile phone, in addition to their password. But SAM.gov didn’t offer that option for account administrators, the executive said.

● DMARC, or Domain-based Message Authentication, Reporting and Conformance, is the industry standard measure to prevent email spoofing — when hackers make their messages appear as if they come from trusted correspondents. If DMARC had been deployed and enabled, spoofed emails purporting to come from SAM.gov would have been marked as spam or simply discarded. SAM.gov has a DMARC record, but enforcement has not been switched on.

A GSA spokeswoman declined to address specific questions about 2FA and DMARC. “This is an active law enforcement-sensitive investigation,” she said in an emailed statement. “GSA has made public as much information as it is able on our website and will continue to update accordingly.”

The executive from the targeted company was very critical of SAM.gov’s security. “It’s ridiculous how poorly put together that site is,” he said, adding that when the company first discovered the cyberattack, he struggled to find a point of contact at GSA to report it to.

“I couldn’t convince anyone to listen to me,” he said. After his initial contact with federal
investigators last year, “There was silence for months,” he said.

“Once they knew there was a problem, they had a responsibility to notify the site’s users… Everyone with an account should have been told to check whether their banking information had been changed … There are a thousand things they could have done.”

“The problem is not they had a problem, everyone has problems” concluded the executive. “The problem is the glacial speed with which they’ve responded.”

https://www.fedscoop.com/sam-gov-hackers-used-spearphishing-spoofing-credential-theft/

Related GSA Announcement:

http://www.smalltofeds.com/2006/12/registering-your-small-business-for.html

 

 

 

 

 

 

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The Scam Artist Who Sold Fake Armored Trucks to U.S. Army

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Fake Trucks

PHOTO ILLUSTRATION BY THE DAILY BEAST

“THE DAILY BEAST”

“Whyte’s fraud is symptomatic of rushed, desperate weapons-purchases that were common during the Pentagon’s invasion and occupation of Iraq. 

Years after the Iraq occupation morphed into a wider U.S. intervention targeting Islamic State militants, the Pentagon still doesn’t know exactly what it’s spending its money on.”


“Sometime in the summer of 2006, John Ventimiglia, a plant foreman for Canada-based Armet Armored Vehicles, visited the company’s Ontario factory to inspect several Kestrel armored trucks that Armet was assembling for the U.S. military in Iraq.

Ventimiglia was horrified by what he saw, according to court documents. The vehicles lacked the floor armor that the military had specified. Instead of special, blast-resistant mineplate, workers had installed fragile plywood planks. It was also apparent that workers were using sandbox-style play sand in the vehicles’ construction—although Ventimiglia wasn’t sure why.

Ventimiglia emailed his coworker Frank Skinner, who then approached the FBI. Nearly 12 years later, this past week, a U.S. district court sentencedArmet CEO William Whyte to five years in prison for supplying fake armored vehicles to the U.S. military during the height of the American-led occupation of Iraq. Seventy-two-year-old Whyte, of Ontario, must also pay back the U.S. government for the trucks.

“Evidence at trial demonstrated that Whyte executed a scheme to defraud the United States by providing armored gun trucks that were deliberately under-armored,” the Justice Department stated.

But the military’s contracting problems aren’t unique to Iraq.

In 2011, the congressionally mandated Commission on Wartime Contracting in Iraq and Afghanistan reported that contractors had cheated the Pentagon out of $31 billion since 2001 (PDF). In one 2007 case, two South Carolina sisters—co-owners of a small parts-supplier—were found guilty of billing the Pentagon $20 million for hardware that was worth a fraction of that.

“Unfortunately, there are unscrupulous individuals out there who will take advantage of a wartime emergency, even one involving the lives and safety of our troops, to pad their own pockets,” Dan Grazier, a former Marine who is currently an analyst with the Project on Government Oversight in Washington, D.C., told The Daily Beast.

In Iraq, an escalating insurgency motivated many of the most flawed purchases. From mid-2005 to mid-2006, roadside bombs and other improvised explosive devices killed around 40 Americans per month in Iraq. Starting in 2006, the Defense Department spent $50 billion buying no fewer than 24,000 up-armored vehicles.

So-called Mine-Resistant Ambush-Protected trucks, or MRAPs—built by major defense contractors—accounted for most of the new vehicles. But the crash effort drew in small companies too, some of which assembled less-complex armored trucks for hauling Iraqi and coalition officials around Baghdad and other Iraqi cities.

Armet Armored Vehicles was one of those smaller companies. The Ontario-based company, which also operated a factory in Danville, Virginia, specialized in adding armor to SUVs and building ambulances and police vehicles. The company provided vehicles for Fast Five, the 2011 installment in the Fast and Furious film franchise.

In March 2006 the Defense Department hired Armet to build Kestrel armored trucks based on the chassis of a Ford F550 pickup. The price: around $200,000 per truck, including shipping. All told, Armet stood to earn $4 million.

The first four Kestrels were due in Baghdad 45 days after Whyte signed the contract in mid-March 2006. The rest, by the end of July. “Here we go, the first 20 Kestrels for Baghdad,” Whyte emailed his staff, according to court documents. “The only problems that I see is the chassis and FINANCE!”

Whyte was correct that it would be problematic to finance what was, for Armet, a substantial boost in production. The company fell behind. Unable to build the trucks on time and to spec, Whyte essentially faked them—replacing some government-mandated floor armor with plywood and leaving gaps in the protection on other parts of the vehicles.

“He knew he couldn’t meet the deadline,” Frank Skinner, who in 2006 oversaw Armet’s Danville factory said of Whyte during the latter’s two-month trial in in the U.S. District Court for the western district of Virginia beginning in June 2015. The first two Kestrels arrived in Baghdad at least two months late. Around the same time, Skinner secretly contacted the FBI about Whyte’s fraud.

While building faulty trucks and delivering them late, Whyte hounded military officials to pay Armet in advance for future vehicles. The military refused most of the requests. “You need to stop using progress payments for an excuse for your inability to deliver these vehicles against any type of credible timeline,” Cmdr. Tommy Neville, a contracting officer in Baghdad, wrote to Whyte.

“We miscalculated and were deluded when we believed that money was forthcoming,” Whyte wrote to another military official in October 2006. Years later, federal prosecutors would allege that Whyte repainted some of the Kestrels he had built for, but not yet shipped to, the U.S. military and instead sold them to the Nigerian government—because the Nigerians offered a higher price. A judge threw out that complaint for a lack of evidence.

In March 2008, the Pentagon rejected the seventh gun truck that Armet had shipped to Iraq and canceled the contract. By then the military had paid Armet around $2 million for six trucks it could not use. The Justice Department indicted Whyte in July 2012 and issued a warrant for his arrest the same day.

“None of the armored gun trucks delivered by Armet and Whyte met the ballistic and blast protection requirements of the contracts, despite the defendant’s claims that the vehicles met the standards,” the FBI stated. “Armet and Whyte knew that each of the six armored gun trucks failed to meet the required standards, that they were defective, and that they would not protect the officials they were intended to protect.”

Whyte fled to Canada to avoid prosecution. Armet shut its doors. Canadian authorities extradited the former CEO after a three-year legal battle. On Oct. 9, a jury unanimously found Whyte guilty on three counts of major fraud against the United States, three counts of wire fraud and three counts of criminal false claims.

Five months later on Feb. 20, Judge Jackson Kiser sentenced Whyte to spend 70 months in prison—and to pay back the $2 million his company received for the fake armored vehicles.

For the Pentagon, the underlying problem likely persists. In January 2017, the Government Accountability Office estimated that, as recently as 2016, as much as 5 percent of all federal payments to individuals and contractors were “improper” and resulted in $144 billion in waste in that year alone (PDF).

But that calculation didn’t take into account military contracts, owing to “serious financial management problems at the Department of Defense that have prevented its financial statements from being auditable,” the GAOexplained. In late 2017 Congress finally passed a law requiring the Defense Department to conduct a full audit starting in 2018.

In the meantime, it’s unclear how many other William Whytes are out there, cheating American servicemembers and taxpayers. “This is just one of the many reasons why we need to have effective oversight of the DoD acquisition process,” Grazier said.”

https://www.thedailybeast.com/the-scam-artist-who-sold-fake-armored-trucks-to-us-army

 

Transparency International 2017 Survey of U.S. Citizens on Corruption in the U.S.A.

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U.S. Corruption

“TRANSPARENCY INTERNATIONAL”

“The US faces a wide range of domestic challenges related to the abuse of entrusted power for private gain, which is Transparency International’s definition of corruption.

Key issues include the influence of wealthy individuals over government; “pay to play” politics and the revolving doors between elected government office, for-profit companies, and professional associations; and the abuse of the US financial system by corrupt foreign kleptocrats and local elites.”


” The current US president was elected on a promise of cleaning up American politics and making government work better for those who feel their interests have been neglected by political elites.

Yet, rather than feeling better about progress in the fight against corruption over the past year, a clear majority of people in America now say that things have become worse. Nearly six in ten people now say that the level of corruption has risen in the past twelve months, up from around a third who said the same in January 2016.

A new survey by Transparency International, the US Corruption Barometer 2017, was carried out in October and November 2017. It shows that the US government and some key institutions of power still have a long way to go to win back citizens’ trust.

The results show:

  • 44 per cent of Americans believe that corruption is pervasive in the White House, up from 36 per cent in 2016.
  • Almost 7 out of 10 people believe the government is failing to fight corruption, up from half in 2016.
  • Close to a third of African-Americans surveyed see the police as highly corrupt, compared to a fifth across the survey overall.
  • 55 per cent gave fear of retaliation as the main reason not to report corruption, up from 31 per cent in 2016.
  • 74 per cent said ordinary people can make a difference in the fight against corruption.

OFFICE OF THE PRESIDENT SEEN AS MOST CORRUPT

The survey asked about the degree of corruption in nine influential groups. These included the national government (the president’s office, members of congress, government officials), public officials who work at the service level (tax officials, the police, judges, local officials), and those who are not part of government but who often wield strong influence (business executives, religious leaders).

Of these categories, government institutions and officials in Washington are perceived to be the most corrupt in the country. The results show that 44 per cent of Americans now say that most or all of those in the Office of the President are corrupt, up from 36 per cent who said the same last year.

Additionally, many people hold an unfavourable view of big business. Almost a third of people in the United States think that most or all business executives are corrupt.

In comparison, judges are seen to be the cleanest, with just 16 per cent thinking that they are highly corrupt.

A higher proportion of African-Americans surveyed view the police as highly corrupt: 31 per cent, versus an average of 20 per cent across all those surveyed.

WEAKER GOVERNMENT EFFORTS TO STOP CORRUPTION

The findings also reveal that people are now more critical of government efforts to fight corruption. From just over half in 2016, nearly seven in ten people in the United States now say that the government is doing a bad job at combatting corruption within its own institutions – this is despite widespread commitments to clean up government.

VOTING STILL THE MOST EFFECTIVE ACTION PEOPLE CAN TAKE

At the same time, the survey reveals that despite increased concerns about the level of corruption, many people feel empowered to make a difference, demonstrating that citizens can engage with the issue.

When we asked what actions would be most effective at fighting corruption, using the ballot box came out top. Twenty-eight per cent said that voting for a clean candidate or a party committed to fighting corruption is the most effective thing they could do. However, this figure has declined from 34 per cent in 2016.

There has been a slight increase in the proportion of people saying that some form of direct action away from the ballot box would be most effective – speaking out on social media, joining a protest march, joining an anti-corruption organisation, signing a petition, talking to friends or relatives, or boycotting a business. Collectively, a quarter of people in the United States now think these are the most effective things they can do, up from 17 per cent in 2016.

A further 21 per cent said that reporting corruption was the most effective solution.

FEAR OF RETALIATION PREVENTS MORE PEOPLE FROM REPORTING CORRUPTION

In reality, however, many people don’t come forward to report corruption when they see or experience it. When we asked why that might be, Americans now overwhelmingly say it is because they are afraid of suffering retaliation as a result. Over half of people (55 per cent) cited this as the main reason more people don’t come forward: a substantial increase since 2016, when only 31 per cent said the same.

RECOMMENDATIONS

Americans have expressed their frustration with Washington and its elected officials in myriad ways. Yet there are things that can be done to ensure that institutions are clean and that taxpayer dollars are spent in alignment with the public’s concerns and not just with special corporate and elite interests.

Transparency International calls on the US Government to address the following:

1.  TRANSPARENCY IN POLITICAL SPENDING:

Make all spending on politics genuinely transparent, with:

– real-time information accessible in online, machine-readable form to the public
– transparency on political spending by publicly traded companies
– transparency to the public on every level of influence, from political ad campaigns, to lobbying, to bundled campaign contributions.

2. PREVENTION OF REVOLVING DOORS:

Stop the unchecked exchange of personnel among corporations, lobbyists and our elected and high-level government officials.

3. ESTABLISHING WHO OWNS WHAT:

End the use of anonymous shell companies, which can be a source of conflict of interest and/or vehicles for illicit activity.

4. STRENGTHENING THE ETHICS INFRASTRUCTURE:

Reinforce the independence and oversight capabilities of the Office of Government Ethics.

5. PROTECTION OF WHISTLEBLOWERS:

Improve and implement laws and regulations to protect the whistleblowers who expose corruption and other misconduct by the government and its contractors.

6. PROVIDING BASIC ACCESS TO INFORMATION:

Increase access to information about the government, as a means to empower the public to fight corruption.

Earlier this year Transparency International highlighted how corruption and inequality can create fertile ground for populist leaders, but that such populist politics do little to actually stop corruption. The findings of the US Corruption Barometer 2017 reinforce this message. America needs actions – not just words – towards a cleaner and more open government.

METHODOLOGY

Transparency International commissioned Efficience3 to carry out the US Barometer 2017. Efficience3 directed a Computer Assisted Telephone Interviewing of 1,005 respondents from October 2017 to November 2017. Respondents were selected using Random Digital Dialling. Data were weighted to be demographically representative of all adults in the United States aged 18+ by age, gender, social grade, region, rural/urban area, and ethnicity. Efficience3 conducted a comparable survey of 1,001 respondents for Transparency International from January 2016 to February 2016.”

https://www.transparency.org/news/feature/corruption_in_the_usa_the_difference_a_year_makes

 

 

Ex-GSA Contracting Official Gets Prison Time for Nepotism

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GSA Official Goes to Jail

“GOVERNMENT EXECUTIVE”

“The director of a central contracting office at the General Services Administration has been sentenced to one year in prison for a nepotism conspiracy, while her husband received 18 months, the Justice Department announced.

Part of the more than $200,000 scheme executed from 2010-2014 involved inducing an Arlington-Va.,-based contractor to hire Steve Ballard based on false statements about his education, qualifications and status as the husband of Renee Ballard, who would supervise the contract in question.

Helen Renee Ballard, 52, and Robert “Steve” Ballard, 56, both of Brandywine, Md., pleaded guilty last March to conspiracy to make false statements to authorities concerning the work qualifications Robert Ballard used in attempting to obtain work for federal agencies and contractors. Helen Ballard, who left GSA in 2016, had been director of the agency’s Central Office Contracting Division from May 2006 to May 2011.

The couple acknowledged causing more than 139 false employment applications and fake certification documents to be submitted to the FBI, the Office of the Director of National Intelligence, the State Department, the Transportation and Security Administration, the Veterans Affairs Department, the Education Department, the Federal Communications Commission, the Federal Emergency Management Agency, the Labor Department, the Office of Personnel Management, and the Internal Revenue Service.

“The Ballards sent Steve Ballard’s false resume to the Executive Office of the President in an attempt to obtain employment there,” the release said. Steve Ballard also submitted falsified applications to six private contractors working for GSA and Customs and Border Protection, among other agencies.

A co-conspirator, Donna C. Hughes, 32, of Lanham, Md., who worked under Renee Ballard as a contracting officer at GSA, pleaded guilty on April 21 and last week received a year of probation.

The sentencing in federal court Alexandria, Va., was announced by Dana Boente, U.S. Attorney for the Eastern District of Virginia, and GSA Inspector General Carol Ochoa.”

http://www.govexec.com/contracting/2017/08/ex-gsa-contracting-official-gets-prison-time-nepotism/139975/?oref=federal-news-all

Government Accountability Office Stings DOD – “Fake Cops” Get $1.2 Million in Real Weapons

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GAO Sting

“WIRED”

“The GAO created a fictitious law enforcement agency—complete with a fake website and a bogus address that traced back to an empty lot.

The agency’s faux cops were able to obtain $1.2 million worth of military gear, including night-vision goggles, simulated M-16A2 rifles, and pipe bomb material from the Defense Department’s 1033 program.

When you think of a federal sting operation involving weaponry and military gear, the Government Accountability Office doesn’t immediately jump to mind. The office is tasked with auditing other federal agencies to root out fraud and abuse, usually by asking questions and poring over paperwork.

This year, the agency went a little more cowboy and applied for military-grade equipment from the Department of Defense. And in less than a week, they got it.

“They never did any verification, like visit our ‘location,’ and most of it was by email,” said Zina Merritt, director of the GAO’s defense capabilities and management team, which ran the operation. “It was like getting stuff off of Ebay.”

In its response to the sting, the Defense Department promised to tighten its verification procedures, including trying to visit the location of law enforcement agencies that apply and making sure agents picking up supplies have valid identification, the GAO report said. The department also promised to do an internal fraud assessment by April 2018.

A Defense Department spokesman declined to comment further.

The sting operation has its roots in the 2014 fatal police shooting of Michael Brown in Ferguson, Missouri. At the time, many were surprised to see law enforcement respond to protests with armored trucks, sniper rifles, tear-gas bombs, and other weapons of war.

Reporting by The Marshall Project and others found that much of the equipment came from the obscure 1033 program, which dates back to the Clinton era. Any equipment the US military was not using—including Humvees, grenades, scuba-diving gear, and even marching-band instruments—was available to local cops who could demonstrate a need.

The program has transferred more than $6 billion worth of supplies to more than 8,600 law enforcement agencies since 1991.

After Ferguson, then-President Barack Obama issued an executive order prohibiting the military from giving away some equipment and deeming other equipment “controlled,” establishing strict oversight and training requirements for law enforcement agencies that wanted it. The order also required a Defense Department and Justice Department working group to ensure oversight.

But since President Donald Trump took office, the group has not met, according to the Constitution Project, a legal and policy advocacy organization that had been participating in the meetings. Trump has said that he will revoke Obama’s executive order, although he has not yet.

Congress ordered the GAO to look into the program last year. A survey of local law enforcement did not turn up any instances of outright abuse at the state level, but did find one illegitimate agency that had applied as a federal entity and was approved for equipment, Merritt said.

That’s when the agency launched the sting. Contrary to its public image, GAO has snagged other agencies with undercover work in the past, including an investigation of the Affordable Care Act in which the agency submitted fictitious applications, and got approved, for subsidized healthcare coverage.

In this case, the GAO created the fake law enforcement agency—whose name the GAO would not reveal — and it claimed did high-level security and counterterrorism work. Once approved, the agency easily obtained the items from a Defense Department warehouse of unused military goods.

Jim Pasco, executive director of the Fraternal Order of Police, which lists rescinding Obama’s executive order one of its top priorities for the Trump administration, said the possibility of fraud does not indict the whole program.

“It suggests only that the US military is one of the world’s largest bureaucracies and as such is going to have some lapses in material control,” Pasco said. “Law enforcement is going to get that equipment and we’re going to use it, to protect both officers and civilians. And if we don’t get it free from the military, we’re going to have to buy it with taxpayer dollars.”

But to Madhuri Grewal, senior counsel for the Constitution Project, and other opponents of police militarization, the problem is more fundamental.

“There just aren’t many everyday policing uses for military equipment like this,” Grewal said. “The question is why can real law enforcement agencies get some of this stuff, let alone fake ones?”

https://www.wired.com/story/gao-sting-defense-department-weapons/

 

The US Military’s Iran Connection?

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Military and IRAN

(Photo: KGL Logistics logo, Iran rials by Serova / Flickr)

“THE PROJECT ON GOVERNMENT OVERSIGHT”

“The chairman of a key US military contractor in the Middle East was recently charged with multiple felonies in a major fraud, money laundering, and public corruption scheme.

Fraud and money laundering charges are only the latest in a string of KGL controversies in recent years.

There have been accusations of business ties to Iran in violation of US sanctions, and of systematic leaking of sealed and privileged federal court documents and other sensitive material to KGL’s Washington lawyers by the Defense Logistics Agency (DLA), the DoD component that oversees KGL’s US military contracts.

According to court papers in Kuwait, where the charges were filed, misappropriated investor money so far totals more than $160 million, a figure that could go higher, the Project On Government Oversight (POGO) has learned. The contractor, Kuwait and Gulf Link Transport, better known as KGL, is a publicly traded conglomerate with hundreds of millions of dollars in US military contracts. The criminal charges, together with other court documents and unreported revelations made by former executives of a KGL affiliate in a US lawsuit, involve KGL’s possible violation of US sanctions against Iran, and accusations of potentially illicit flows of cash from Russia, Iran, and Syria. Taken together, the allegations raise troubling questions about the American military’s heavy reliance on the firm.

The 2017 criminal indictment by Kuwaiti prosecutors points specifically to a KGL affiliate, called KGL Investments (KGLI), as the alleged nexus of fraud and money laundering inside company headquarters from 2007 to 2015.

Two former KGLI executives have also made related allegations in little-noticed 2013 sworn statements filed in a US lawsuit. One executive said he was told by his KGLI boss that Iran’s state-owned shipping company, sanctioned by the United States in 2008 as a nuclear proliferator, was “KGL’s vehicle to Iran and she further told me that…[it] made a lot of money for KGL.”

The executive also said, “Specifically, it appeared to me that KGLI was engaged in money laundering, and presenting false financial information to investors.”

A spokesperson for KGL told POGO that, “Notwithstanding the name, KGL Investments is neither owned nor controlled by any of the KGL group of companies. No KGL entity is a party to the legal proceedings in Kuwait. The Kuwait courts will address and resolve the disputed allegations.” KGL has long denied it has ever violated US sanctions in any way.

However, KGL Investments, KGL, and many of its subsidiaries are co-located in the same office building and directed, in part, by KGL’s just-indicted chairman, who is also a director of KGLI, according to court papers. The indictment says that a portion of the embezzled funds was channeled to KGL component companies.

Also targeted in the criminal complaint against KGL’s chairman is the Vice-Chairman of KGLI. Convictions could result in jail sentences. Court documents list victims of the alleged fraud as key government departments: Kuwait’s Public Institution for Social Security and its Ports Authority. The Ports Authority serves as a staging area for America’s ongoing military involvement in Iraq, and was indispensable to US Central Command (CENTCOM) in both the first and second Gulf Wars and occupation of Iraq.

According to an official in Kuwait, senior US military personnel at the American embassy and at Camp Arifjan, a large American base in Kuwait, were officially informed of the criminal indictment, and received written copies of the details. This was done, the official said, because the indictment targets executives related to a major US military contractor, allegedly involved in stealing from important Kuwaiti institutions. In a separate dispute, the Ports Authority recently banned KGL from operating in the port. It remained unclear what action, if any, the US military might take in response. Spokespersons at CENTCOM, the Department of Defense, and the US Army’s Contracting Command all declined to comment.

What Happens Next?

Further revelations about KGL or its subsidiaries, or a conviction of one or both of the indicted executives, could call into question the conglomerate’s grip on sizable US military contracts, and its eligibility to receive future awards. Beyond the large contracts it already has, KGL is currently in line for a sizable share of the new so-called Heavy Lift VIII (HL8), a $200 million transportation-services deal that the US military could assign by August. But there is the possibility the award could run afoul of federal contracting rules, which require ethical conduct and the avoidance of serious crimes.

According to contracting rules, officially known as the Federal Acquisition Regulation (FAR): “Purchases shall be made from, and contracts shall be awarded to, responsible prospective contractors only.” The FAR goes on to specify that, “… To be determined responsible, a prospective contractor must … have a satisfactory record of integrity and business ethics.” The regulation notes that contractors may be subject to debarment, suspension, or ineligibility if they are convicted or face a civil judgment for fraud, embezzlement, or “any other offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of a Government contractor or subcontractor.”

In December, the Iran Sanctions Act was extended by 10 years on a 99-0 vote in the Senate, and a 419-1 vote in the House of Representations. The law states that the federal government “shall terminate a contract with such person or debar or suspend such person from eligibility for Federal contracts for a period of not less than 2 years” if they are found to have falsely certified to be in compliance with US sanctions against Iran.

KGL has repeatedly said it complied with provisions of the FAR.

A Hearing in Court

The criminal charges against KGL executives are the result of a four-year probe by Kuwait’s national security police. A court hearing on the matter in Kuwait was held on May 21, and another is scheduled for June 11. Among other records, POGO obtained a 21-page copy of a charge sheet dated May 9, 2017 (in Arabic).

The document names three defendants. Saed Dashti, 61, is chairman of KGL. Maria [Marsha] Lazareva, 44, is Vice-Chairman and Managing Director of KGLI, where Saed Dashti also serves as a director. A third defendant, Mohamed Al-Asfour, 71, is a senior public official: the executive vice-chairman of Kuwait’s Ports Authority.

Documents describe Lazareva as a Russian national. She was educated at the Wharton business school and public records associate her with real estate ownership in the Philadelphia area. According to news accounts, she showed up in court for the May 21 hearing, protesting her innocence.

The indictment says Dashti and Lazareva transferred large sums of investors’ money to their own private accounts and to a variety of KGL subsidiaries or related companies between 2007 and 2015. They did this, court documents say, partly using a network of financial institutions including the Hong Kong and Shanghai Banking Corporation (HSBC) and one of its branches in the Cayman Islands. The bank also has branches in the United States, Kuwait, Asia, and other parts of the world. It’s unclear whether any of the allegedly embezzled funds passed at some point through the American financial system, which could trigger a US investigation.

A civil lawsuit involving KGL in Pennsylvania has brought to light accusations that could bear directly on the alleged fraud and money laundering scheme in Kuwait. The lawsuit, brought by KGL, charges the firm’s principal competitor, Agility Public Warehousing Co., with defaming KGL’s reputation by falsely claiming it had ties to Iran.

Saed Dashti and Marsha Lazareva

Saed Dashti and Marsha Lazareva (Source: Instagram)

 

Testimony in the Pennsylvania case—which is ongoing—includes declarations sworn in 2013 by a pair of former executives of KGL Investments, as part of Agility’s defense. Both said Dashti and Lazareva misinformed investors about KGLI’s financial condition, and one of the executives reported they had made repeated trips to Russia, Iran, and Syria in an apparent attempt to shore up KGLI’s faltering finances.

The two former KGLI executives testified that Dashti and Lazareva occupied offices on the same floors and hallways at KGL’s headquarters in Kuwait along with other subsidiaries.

One of the executives who testified, Ahmed Mabrouk, is an American citizen currently employed in the US financial industry. Court records identify him as former KGLI Vice-President Investments, a job where he testified he spent 18 months in 2008 and 2009 (a period covered by the 2017 criminal indictment) helping to analyze KGLI’s so-called “Port Fund,” an entity that invested in marine facilities around the Middle East and elsewhere. Under oath, Mabrouk said:

“Ms. Lazareva described to me the Islamic Republic of Iran Shipping Lines (IRISL) as KGL’s vehicle to Iran and she further told me that IRISL made a lot of money for KGL. When I was employed at KGLI, I observed Ms. Lazareva in her office reviewing documents related to IRISL, which bore the logo of IRISL, as well as the Iranian emblem.”

The declaration of Mabrouk, who could not be reached for comment, did not include documentary or other evidence to support his statement.

The United States, European Union (EU), and United Nations (UN) have all imposed sanctions on IRISL, Iran’s state-owned shipping company and a former joint-venture partner with KGL. Referring to US sanctions, applied in 2008, then-Treasury Under Secretary for Terrorism and Financial Intelligence Stuart Levey explained:

“Not only does IRISL facilitate the transport of cargo for U.N. designated proliferators, it also falsifies documents and uses deceptive schemes to shroud its involvement in illicit commerce. IRISL’s actions are part of a broader pattern of deception and fabrication that Iran uses to advance its nuclear and missile programs.”

In his declaration, Mabrouk said, “I reviewed KGLI’s internal financial statements and observed that KGLI consistently had a negative cash flow.” Mabrouk also testified that he looked at “…financial statements that had been provided to investors. The financial statements provided to investors consistently, and in bad faith, misrepresented financial data regarding KGLI and its portfolio companies’ actual financial condition.”

Concern about KGLI’s financial condition, according to Mabrouk, caused KGLI’s banks to stop lending it money, creating a cash squeeze. And that led to “fundraising” trips by Dashti and Lazareva, he said:

“I understood that Ms. Lazareva and Saeeed (sic) Dashti took a number of trips on private planes to, among other places, Iran, Syria and Russia. Following each trip, I observed in KGLI’s internal financial statements an influx of funds into KGLI’s accounts. Ms. Lazareva told me and others at KGLI that these trips were for ‘fundraising;’ however, to my knowledge, such fundraising was not tied to any formalized investment process.”

Mabrouk did not say what, if anything, KGL Investments did in exchange for the money it allegedly received, or that he knew specifically that inflows had come from Iran, Syria, and Russia, even though he said the pair had travelled there.

Mabrouk did specify that Lazareva at one point asked him to travel to Syria to “review a potential investment in a port,” but he refused because that country was under US sanctions. Because Mabrouk also holds an Egyptian passport, he said Lazareva told him to use that travel document instead of an American passport. When he refused a second time, it set off a chain of events which, he said, led to his departure from the company.

Another KGLI executive also offered testimony in the same Pennsylvania court case. Wael Salam, an American citizen who worked for KGLI both in Kuwait and in Atlanta, said he was the firm’s Chief Investment Officer. He said both Dashti and Lazareva were directly and deeply involved in decision-making at the firm. He also reported that KGL funded KGLI with money from its subsidiaries as well as seeking contributions from outside investors.

Salam said that, from his perspective as an insider at the company, making profits did not appear to be KGLI’s principal goal, at least given its decision to sink its money and assets from its “Port Fund” into a variety of failing or near-bankrupt facilities in Egypt, Pakistan, and other countries.

Four years before the criminal indictments in Kuwait, Salam testified that he wanted to leave KGLI “…because I believed it was engaging in illicit activities … Specifically, it appeared to me that KGLI was engaged in money laundering, and presenting false financial information to investors.” His statements also show that Salam was trying to raise money to start his own investment fund after he left KGLI, which the company cited as one of the grounds for his dismissal. He could not be reached for comment.

Salam said Lazareva asked him on multiple occasions to visit Iran, sometimes without explanation and at other times to evaluate a port investment. When he refused because Iran was under US sanctions, she suggested that he, too, use his Egyptian passport. He again refused to go and, following a series of disputes and alleged high-pressure tactics by the company, was fired.

A KGL representative declined to comment to POGO on the testimony of Mabrouk or Salam.

More Ties to Iran

The Pennsylvania court case recently provided additional information about KGL’s relationship with Iran, a controversy that stretches back into the Obama Administration. As evidence emerged indicating possible sanctions violations by KGL in its joint ownership of ships with IRISL, Ashton Carter, then Under Secretary of Defense for Acquisition, Technology and Logistics and later Secretary of Defense, wrote to US lawmakers who had inquired about the situation.

In letters to Senators Claire McCaskill, Robert Menendez, Mark Kirk, Robert Bennett, and others in 2011, Carter wrote that DoD could find “no substantial information” that KGL had continuing ties to Iran that would prevent it from holding US military contracts. By that time, the company had publicly announced its decision to end all business dealings with Iran in compliance with US law.

Since then, however, as part of legal discovery in the Pennsylvania court case, KGL has divulged emails and documents, and offered testimony from one of its former executives that appear to show it did have business with IRISL—at a time when Under Secretary Carter was telling Congress just the opposite. At least that is the argument set forth in an extensively documented summary of KGL’s own internal records filed by KGL’s adversary in the Pennsylvania case. Among other things, the summary cites those KGL records showing that its joint venture with IRISL made “at least 63 financial transactions” with the Iranian shipper after US sanctions had been imposed. In another example from the summary, a former KGL executive, Allan Rosenberg, gave the court a statement describing how he set up a “ghost structure” email system that resulted in the concealment of KGL’s continuing business with the Iranian-owned company.

A KGL spokesperson declined to comment on the summary or on Rosenberg’s statement.

Airplane Parts for Iran?

In May last year, Fuad Dashti, a brother of the recently indicted Saed Dashti—both members of the wealthy Kuwaiti family that controls KGL—was arrested at San Francisco International Airport. He was charged with involvement in illegally selling aircraft parts to Iran, according to a senior US official, and brought to Washington, DC, apparently for questioning by the FBI. One official at the time described him as, “singing like a bird” while in US custody. Fuad Dashti has since been allowed to leave the United States and was photographed some months ago in Doha, Qatar. At the time of his arrest, a KGL spokesman told POGO that “the alleged conduct [of Fuad Dashti] does not involve KGL or any of its affiliates and that Mr. Fuad Dashti was not acting as a KGL employee or representative.”

However, Fuad Dashti maintains ongoing financial ties to KGL, and has been listed as a top executive and part owner of National Cleaning Company, which is partly owned by KGL. According to the recent indictment in Kuwait, Saed Dashti also owns a share of National Cleaning, though it is unclear whether misappropriated funds were diverted to the company. There was no reply to POGO’s repeated attempts to reach Fuad Dashti, including a message left at a California house where he is listed as owner.

Key Questions Remain

The criminal indictment of KGL’s chairman adds to a growing roster of unresolved issues swirling around the company and its role as a contractor with hundreds of millions of dollars in business with the US military. Questions surrounding the company’s possible financial ties to Iran, and even Syria and Russia, raise national security concerns at a time when those countries are actively engaged in confronting American interests.

America’s federal acquisition regulations require ethical conduct from companies and their leaders. The large body of evidence in Kuwait’s extensively documented fraud and money laundering case raises doubts whether that requirement is being met.

So, too, does the arrest of Fuad Dashti, long a key figure in KGL’s controlling dynasty, on charges of commercial dealings with Iran. Yet the US government has made virtually no public statements about the matter. The fact that KGL, as long ago as 2011 and perhaps earlier, has been the focus of a probe led by the FBI into its ties with Iran only adds to the doubts. Again, no result of that investigation has ever been made public. And the same is true of the US official response to a well-documented pattern of leaks to KGL’s Washington lawyers by the Defense Logistics Agency. Senior US officials have told POGO that the DoD’s Office of General Counsel and its Defense Criminal Investigative Service have looked at or been made aware of the matter. Yet neither has made a public statement about the issues.

Indeed, years of requests for information about KGL from agencies ranging from DoD to the Treasury’s Office of Foreign Assets Control have been met with incomplete answers and, on occasion, with apparently inaccurate information. Given that result, Congress needs to clear up what is going on with KGL and its huge government contracts, because federal agencies appear unable or unwilling to shed light on the issue, or credibly resolve it.

Given the new criminal charges lodged against KGL’s chairman, the American public needs to know whether the company is a responsible and deserving recipient of US taxpayer funds. To find out, Congress should look into what the FBI and other agencies have learned after years of investigating the company’s conduct, and inform the public of what it learns.

Of course KGL is not the only logistics contractor the US military could rely on. Its principal competitor, and one of the largest single US contractors in the Iraq war, is Agility Public Warehousing Company. Yet Agility, too, has faced its share legal problems: the Department of Justice recently settled criminal, civil, and administrative charges against it. In the criminal case, which began in 2009, DOJ sought hundreds of millions of dollars in compensation for alleged overcharging.  In the end, Agility was only required to “pay a maximum of $551…in restitution.” In the civil case, the company agreed to pay $95 million, ending its suspension and allowing it to bid once again on US government contracts.

Taken together, Agility’s recently resolved legal problems and the new criminal charges against KGL’s chairman highlight the need for Congress and the Defense Department to reevaluate a contracting framework that has made America’s military the captive of two giant companies in one of the most strategic parts of the globe, an area where US forces cannot operate without extensive logistical support. As an alternative to this dysfunctional system, Congress and the Defense Department should examine how to foster more competition by explicitly encouraging the Pentagon to make deals with a wider variety of market participants.”

http://www.pogo.org/our-work/articles/2017/us-top-militarys-iran-contracting.html

 

Army Colonel, Wife and Defense Contractor Accused – $20 Million Bribery and Kickback Scheme

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Gavel and law books

(Photo Credit: BrianAJackson/Getty Images via iStockphoto)

“ARMY TIMES”
“Col. Anthony Roper conspired with his wife and others to seek and accept bribes in exchange for rigging more than $20 million in Army contracts to individuals and companies, prosecutors said Thursday.

The scheme began in 2008 and lasted nearly a decade, prosecutors said.

Roper was stationed at Fort Gordon near Augusta, Georgia. His duties included oversight of the Army’s efforts to build and modernize its information and communication networks, an indictment said.

Roper, 55, is charged with conspiracy, bribery, obstruction and making false statements. He faces up to 85 years in prison if convicted.

The colonel’s wife, Audra Roper, 49, is charged with conspiracy, false statements and obstruction.
Dwayne Oswald Fulton, 58, is charged with conspiracy and obstruction. Fulton was an officer for “a large defense contracting company.” The firm is not named in the court records.

Audra Roper operated Quadar Group, which prosecutors said was a shell company used to funnel bribe payments to her husband, the indictment states. It was one of multiple shell companies used to defraud the government, prosecutors said.

Court records filed this week do not list any attorneys for the defendants.

A spokesman at Fort Gordon did not immediately respond Thursday.”

Company and Government Employee Charged In $6 Million Humvee Window Frame Fraud

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Humvee Military Trader dot com

“MILITARY TRADER .COM”

“Federal prosecutors have charged Thomas Buckner, 65, of Gibsonia, Pa., and John Buckner, 67, of Lyndora, Pa., with fraud.

Anthony Shaw, a civilian employee at U.S. Army Tank-Automotive and Armaments Command (TACOM) is accused of accepting more than $1 million for helping the scheme, prosecutors said.


“The brothers are accused of cheating the U.S. Army Tank-Automotive and Armaments Command (TACOM) out of the money with the help of a shell company and kickbacks.

The brothers own a military supply business. They, along with Anthony Shaw, a civilian employee at TACOM, and two others have been charged with a $6 million scheme to overcharge the Defense Department for Humvee window frames, federal prosecutors said on March 3, 2017. Shaw, is accused of accepting more than $1 million for helping the scheme, prosecutors said.

Also present in the prosecutors’ court filing, the Buckners co-own Ibis Tek, a Butler company that had contracts to supply aluminum window frames for Humvees. The brothers created another company called Alloy America that was supposed to be manufacturing the window frames that Ibis Tek would then sell to TACOM. But instead of doing that, the Buckners had Alloy American purchase the frames for $20 each from a Chinese firm, then created records to make it appear Ibis Tek paid Alloy America $70 for each frame.

Ibis Tek then passed on the $70-per-frame cost to TACOM. The Buckner brothers also sold scrap aluminum relating to the manufacture of the frames but kept the money. The Buckners and Ibis Tek were supposed to credit the scrap revenue to TACOM as a way of helping the government agency control costs.

Ibis Tek’s chief financial officer, Harry Kramer, 55, of Wexford, helped the Buckner brothers carry out the scheme and then filed false tax returns that understated Ibis Tek’s income in 2009 and 2010.

The documents also assert that the payments to Shaw were funneled through a Michigan motorcycle business, D & B Cycle Parts and Accessories. That business is owned by David Buckner, of Warren, Michigan, who is not related to the Pennsylvania brothers.

If convicted of major fraud against the government and income tax evasion, the Buckner brothers each face up to 20 years in prison and fines up to $1.5 million, while Kramer faces up to 16 years in prison and a $1.5 million fine.

Shaw, 55, of Rochester Hills, Mich., faces up to 19 years in prison and a $1.25 million fine if convicted of receiving a gratuity as a public official, tax evasion and making false statements.

David Buckner faces up to three years in prison and a $250,000 fine if convicted of corrupt or forcible interference with the Internal Revenue Service investigation for allegedly funneling the payments from the brothers to Shaw, his friend.”

http://www.militarytrader.com/military-vehicles/group-charged-hmmwv-parts-scam

Driving School Scammed VA out of $4M in Vet Tuition

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MoneyStackWeb truck

“FEDERAL TIMES”

“Alliance School of Trucking enrolled veterans to attend the school and instructed them to claim tuition and fees funding from the VA through the Post-9/11 GI Bill.

[They] then told the veterans they wouldn’t have to attend the classes, but could still collect housing and books fees supplied by the VA, while tuition payments were disbursed directly to the school.

According to an April 6 federal indictment, Alliance School of Trucking owner Emmit Marshall, 50, of Woodland Hills, and the school’s director, Robert Waggoner, 54  created student files with fake documents and submitted bogus enrollment certifications, netting the school $2.35 million in tuition fees and another $1.96 million in education benfits — like housing and, in some cases, books — paid to veterans from 2011 to 2015.

“The VA offers generous benefits to veterans who have put their lives on the line to safeguard America,” said acting U.S. Attorney Sandra R. Brown in a statement. “Fraud schemes, particularly those involving schooling for veterans, compromise the system designed to help veterans after they complete their service. Taxpayers who fund these programs also suffer when benefit programs are subject to waste, abuse and fraud.”

Agents with the Department of Veterans Affairs’ Office of Inspector General arrested Waggoner on April 13 and Miller was scheduled to turn himself in on April 18.

The pair is expected to be arraigned in U.S. District Court for the District of Central California on a nine-count indictment of wire fraud. If convicted, Miller and Waggoner could face a maximum 20-year sentence in federal prison for each count.”

http://www.federaltimes.com/articles/truck-driving-school-owner-arrested-for-scamming-va-out-of-4m-in-vet-tuition-truck-driving-school-owner-arrested-for-scamming-va-out-of-4m-in-vet-tuition-truck-driving-school-owner-arrested-for-scamming-va-out-of-4m-in-vet-tuition

 

Government Contractor Tax Day Tidbits – “Food for Thought”

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tax day

“THE PROJECT ON GOVERNMENT OVERSIGHT”

[On] the federal tax filing deadline, the Project On Government Oversight (POGO) offer[ed] some tax-related contractor oversight food for thought:

  • ” The Treasury Inspector General for Tax Administration (TIGTA) found that the Internal Revenue Service (IRS) awarded contracts to at least 20 companies that owed more than $5 million in delinquent federal taxes. TIGTA also found that 11 contractors owing $4.3 million in taxes were awarded more than $356 million in IRS contracts and an additional $3.7 billion in contracts from other federal agencies
  • POGO tracks tax violations in our Federal Contractor Misconduct Database, which shows that contractors have paid $3.64 billion to resolve cases with local, federal, and foreign revenue collection authorities. The bulk of this amount comes from GlaxoSmithKline’s record-breaking $3.4 billion payment in 2006 to settle IRS charges of under-reporting profits.
  • There are some noteworthy tax misconduct cases pending against the large federal contractors, including actions by New York City and State against FedEx and United Parcel Service for allegedly trafficking in contraband cigarettes, and a complaint filed with the IRS accusing ExxonMobil of violating tax laws to wage a campaign attacking climate science.
  • Earlier this month, the IRS launched a program employing private debt collection companies to recover delinquent income taxes. This is the third time since 1996 the IRS has tried to outsource tax debt collection—both previous attempts were dismal failures.
  • Congress has taken another stab at passing a law that would prevent individuals with seriously delinquent tax debts from obtaining federal employment, contracts, and grants. Similar bills introduced in 2011, 2013, and 2015 ultimately failed to advance. The Senate is also attempting to strengthen protections for those who blow the whistle on tax fraud.

So get those tax returns out the door! You can rest assured that POGO will do its best to make sure the government collects what it is owed and does not waste that money.”

http://www.pogo.org/blog/2017/04/tax-day-tidbits.html