Executives from a company responsible for providing food and water for deployed U.S. troops in Afghanistan have been charged with defrauding the government and creating a fake construction site to overstate progress on an $8 billion contract, the Department of Justice said in a recently-filed indictment.
The allegations came four years after the company's predecessor pleaded guilty to criminal charges that it fraudulently inflated prices for basic items it sold to the U.S. military. Both cases emphasized how the U.S. military has struggled to curb abuses of U.S. defense spending in America's longest-running foreign war as the U.S. military presence in Afghanistan enters its 17th year, analysts said.
On Nov. 27 the Justice Department charged Abdul Huda Farouki, Mazen Farouki and Salah Maarouf, three Virginia residents who worked with a Dubai-based company called Anham FZCO, with defrauding the U.S. military under an estimated $8 billion military supply contract.
The DOJ also accused them of laundering money, violating U.S. sanctions while shipping products through Iran, and photographing a fake construction scene to mislead contracting officers regarding their progress. The three individuals pleaded not guilty.
The lawsuit revived long-standing concerns over Anham's stewardship of taxpayer dollars, and also raised questions about the government's oversight of the Subsistence Prime Vendor - Afghanistan contract, known as SPV-A. The contract is seen as important to the U.S. military presence in Afghanistan because it ensures deployed U.S. troops have access to food, water and basic provisions. Servicing it is immensely challenging, however, because the contractor is required to build and maintain a distribution network in the middle of a war zone.
The last company to handle that work, a privately held Swiss company called Supreme Foodservice GmbH, pleaded guilty to similar charges in 2014 and paid $288.36 million in criminal fines following a congressional inquiry.
Scott Amey, general counsel with the nonprofit Project on Government Oversight, described the Pentagon's oversight of the food and water supply contract as "a game of catch-me-if-you can" in which the government is losing.
"Uncle Sam spends over $500 billion annually on contracts, so contractor responsibility and oversight of contracts are essential to prevent waste, fraud, abuse, and corruption. Unfortunately, oversight often takes a back seat," Amey said of the indictment. "The allegations of fraud against Anham are even more disturbing because other food service contractors in Afghanistan have pleaded guilty to similar charges in the past."
Defense Logistics Agency deputy director of public affairs Patrick Mackin declined to comment on the allegations against Anham FZCO, but noted that the agency "employs a team of experienced acquisition specialists that have consistently administered this contract." He described a detailed process through which the Defense Logistics Agency evaluates vendors in cooperation with other Defense Department Agencies. The agency is in the process of re-competing the contract, he said.
The indictment against Anham describes an elaborate scheme to mislead U.S. contracting officers as the company competed for lucrative government work.
When the company fell behind on a project to build a complex of warehouses near Bagram Airfield in Afghanistan, the DOJ alleged, the company submitted fabricated completion dates and "misleading photos" that made the project look further along than it actually was.
Anham employees were directed to "transport construction equipment, prefabricated sheds, generators, empty shipping containers and a construction crane to the site of the proposed Bagram warehouse complex to create the false appearance of a construction site," the DOJ indictment states.
A. Huda Farouki and other Anham employees "knew that on or about December, 1, 2011, little construction work had taken place on the Bagram warehouse complex - specifically, that 'holes [were] dug and concret[e] [was] poured for the base of the supporting columns' for the first warehouse, even though there was 'no visible structure' for the first warehouse and that 'no work whatsoever' had been done on the second warehouse," DOJ alleged.
Anham denied the DOJ's allegations in a statement posted on its website, saying it had made "good faith efforts to meet aggressive construction timelines in one of the most difficult environments in the world," noting that "at no point the company had caused any loss to the government." The 442-word statement did not address the allegations that the company had constructed and photographed a fake construction scene.
"We are extremely disappointed that the Justice Department took this action, which is based on a mistaken reading of both the facts and the law, and which is contradicted in critical respects by positions the department itself has taken in past proceedings where it defended Anham against some of the same allegations it is now making," the company wrote.
The company also claimed that the investigation, which was handled jointly by the Department of Homeland Security and the Special Inspector General for Afghanistan Reconstruction, had been has been orchestrated by a competitor. It did not name the competitor.
The indictment follows a government audit report that accused the firm of overbilling the government on a separate contract, and a Wall Street Journal investigation that found the company had shipped supplies through Iran.
The indictment cites an email in which an Anham executive allegedly told an employee for a subcontractor "can you please take me off the emails. . . . I am neither interested nor concerned with shipments going through Iran." Then, according to the indictment, the subcontractor employee replied "how many times do we need to request to remove the mentioning of a specific country in all emails. STOP that mentioning please IMMEDIATELY."
Anham admitted to shipping products through Iran, saying it had first self-reported that to the Justice Department in 2013 and has been cooperating with investigators.
"To be clear, Anham did not do business with any sanctioned individual or sell any prohibited materials to Iran," Anham's statement reads. The company also claimed that "U.S. law actually permits non-U. S. companies like Anham to make such shipments." [The Justice Department noted in its indictment that the SPV-A contract solicitation required any bidder to abide by all U.S. laws including sanctions prohibiting business involving Iran.]
Anham still holds U.S. troop supply contracts for Afghanistan, Iraq, Kuwait, Syria and Jordan. In 2015 the agency re-competed the troop supply contract for Kuwait, Iraq, Syria and Jordan, awarding the work to a different company. Anham protested the award, however, and was offered to a $261 million bridge contract that preserves Anham's business with the Defense Logistics Agency until September 2019.
Defense spending watchdogs have raised questions about Anham's work for years. A 2011 report from the Defense Department's Special Inspector General for Iraq Reconstruction faulted two government agencies for "poor government oversight" of Anham's work on a different set of warehouses in Iraq, faulting the government for failing to scrutinize Anham's relationship with its subcontractors.
The review noted that Anham chief executive A. Huda Farouki held substantial ownership stakes in multiple companies that were subcontracted to work with Anham. Specifically, the review noted that Farouki, through a holding company owned by his family, owned 25 percent of Anham, as well as 100 percent ownership of three of its subcontractors, including the Unitrans shipping company that is now accused of shipping products through Iran.
The report specifically chided the government's oversight of the contracts, noting that fifteen different contracting officers had been assigned to oversee one of Anham's contracts over a two-and-a-half year period. The report flagged almost 40 percent of the payments it reviewed as "questionable."
The review noted that a company called Pioneer Iraqi General Trading Company, which was 90 percent owned by A. Huda Farouki's family group, had won work in some cases despite bidding more than 10 times higher than a competitor's prices.
Among the review's findings: $900 for a water level electrical control switch that a competitor offered to supply for $7.05; $80 for a PVC pipe elbow that a competitor offered to supply for $1.41; thousands of dollars for circuit breakers that a competitor offered to supply for less than $300 each; $650 for a flood light that a competitor offered to supply for $35.25; and $350 for steel rebar that a competitor offered to supply for $16.92.
"The lack of transparency regarding the relationship between Anham and its subcontractors calls into question whether Anham used due diligence to ensure that the U.S. government received a fair price for the goods and services it purchased," the inspector general noted in its report.
The report further criticized the Defense Contract Management Agency for failing to ask Anham executives about the company's relationships with subcontractors.
"Exploring these relationships is important because it may raise important questions about whether there is truly an arms-length business relationship between the prime contractor and its subcontractors," the review concluded, noting that DCMA officials admitted they could have been more thorough in reviewing Anham's business.