April 1, 2005

Assuming the Justice Dept. fails to sign on to a suit against private paramilitary firm Custer Battles filed by two former associates, the government will be officially ignoring a claim of some $50 million in scammed funds.

Apr 1 - Despite strong evidence from well-connected whistleblowers and military investigators that the American mercenary firm Custer Battles over-billed US occupation authorities in Iraq by tens of millions of dollars, the Bush administration has refused to pursue legal action, so far declining multiple invitations to join a lawsuit brought against the company. The latest invitation expires today.

"The government has not lifted a finger to get back the $50 million Custer Battles defrauded it of," said Alan Grayson, an attorney for two whistleblowers, former company employee Pete Baldwin and Robert Isakson, a Custer Battles subcontractor. Grayson, who spoke to Newsweek, filed a "false claims" lawsuit last fall against the company on behalf of the federal government.

Although the judge hearing the fraud suit has twice invited the Justice Department to join the case, the Bush administration has thus far refused. According to multiple sources, Justice Department officials have privately argued that the Coalition Provisional Authority (CPA), which governed Iraq during the first year of occupation, was not an arm of the US government but rather a multinational institution. Following this logic, the Bush administration can claim that technically it has not been defrauded by Custer Battles, nor by any other company working under CPA contracts.

Grayson counters that position by pointing out that a 2003 law signed by George W. Bush himself -- which authorized $18.7 billion for reconstruction in Iraq -- explicitly referred to the CPA as "an entity of the United States Government." And at least one CPA contract with Custer Battles indicates it is a Department of the Army document and is signed by American contracting officer Patricia G. Logsdon of the US 336th Finance Command.

The administration's failure to join the suit effectively makes Iraq a "free fraud zone," in the words of Frank Willis, a former CPA official who testified before Congress in February that he handed $2 million in shrink-wrapped $100 bills to a representative from Custer Battles without properly accounting for the cash award. Willis, who indicated that paying corporations in cash without collecting receipts was a matter of policy, also provided a photograph showing himself and two other CPA employees smiling while holding bricks of cash he says they handed to a representative of Custer Battles minutes later.

Berlin-based Transparency International, an anti-corruption watchdog organization, recently criticized the CPA for its handling of reconstruction contracts in Iraq. A report by the group warns that unless immediate corrective measures are taken, Iraq's reconstruction could become "the biggest corruption scandal in history."


The suit filed by Baldwin and Isakson claims that Custer Battles double-billed the CPA for salaries and that they repainted forklifts they found at Baghdad airport before leasing them back to the US government at a rate of $1,000 per month per machine.

In addition to alleging fraud, the suit claims that after Isakson complained about Custer Battles' practices, company employees held him and his 14-year-old son at gunpoint. According to the suit, the employees then kicked Isakson and his son off the US base at the Baghdad airport.

Other charges of brutal treatment have come from former Custer Battles security personnel.

Four former US military veterans who worked for Custer Battles in Iraq came forward last month saying they witnessed other company employees brutalizing Iraqi civilians. According to NBC, the men, who say they quit the company after a few missions, claim that heavily armed security operators on Custer Battles' outings frequently fired at civilians indiscriminately as they ran for cover. The Army told NBC it is investigating the accusations.

Newsweek reports that in 2004 Steven Shaw, the Deputy General Counsel of the Air Force, asked that Custer Battles be banned from future business with the US. He said the company had "created sham companies, whereby [it] fraudulently increased profits by inflating its claimed costs." Shaw's recommendations came nearly a year after an Army inspector concluded that Custer Battles was incompetent and had refused to obey rules established by the CPA.

According to the LA Times, Custer Battles was a newly formed company with no experience in the security industry when in the spring of 2003 it landed one of the first contracts issued in post-invasion Iraq. The no-bid contract to maintain security at the Baghdad airport was worth $16 million, the Times reported.

The Virginia-based company is headed by Scott Custer, a former Army Ranger, and Mike Battles, a former CIA employee, who was fined by the Federal Elections Commission for misrepresenting campaign contributions during a failed race for Congress in Rhode Island in 2002. Battles has also been a commentator for the Fox News Channel.

In August 2003, according to Shaw's report, the company won a contract to provide support for a currency exchange program in which Iraqis traded in their old currency for new Iraqi dinars. The "cost plus" contract paid all the company's operational expenses, plus a 25 percent markup for overhead and profit. A few months later, Custer Battles representatives accidentally left a spreadsheet in a meeting that was later discovered by CPA employees, the LA Times reported. The spreadsheet reportedly showed that although the currency-exchange operation had cost the company $3.7 million, Custer Battles billed the CPA for $9.8 million, a markup of 162 percent.

Richard Sauber, an attorney for Custer Battles, who says his clients deny the charges against them, doesn't think the Bush administration will accept the judge's latest invitation to join the false claims suit. "I'll bet you $50 dollars they will not show up," he told Newsweek.

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