Contractor Accused of Overbilling in Iraq

WASHINGTON – A company hired to provide security for U.S. officials and installations in Iraq (search) fleeced the government out of millions of dollars by submitting phony or inflated bills, a lawsuit by two former employees says.

The federal lawsuit unsealed Friday says Custer Battles (search) LLC billed the former Coalition Provisional Authority (search) for equipment and services that didn't exist and inflated other charges. The improper charges, the lawsuit says, included billing for fake leases on up to eight forklifts swiped from Iraqi Airways.

The Air Force suspended Custer Battles on Sept. 30 from obtaining new contracts on the ground that it has reason to believe the company broke federal contracting rules.

Custer Battles spokeswoman Jennifer Martin did not return repeated messages seeking comment Friday.

Lawyers for the two men suing Custer Battles say the firm's fraudulent charges amounted to $50 million. Federal law allows fines against companies that defraud the government in an amount equal to three times the fraudulent proceeds.

The Pentagon, Justice Department and other federal agencies are investigating several cases of alleged fraud among contractors in Iraq. Internal watchdogs at the Pentagon and CPA have said U.S. contracting officials did not follow proper procedures on many of those contracts.

The former employees, Robert Isakson and William Baldwin, sued under a federal law that allows citizens to sue on behalf of the government when they suspect fraud in federal contracting. Should they win, those who bring the lawsuit can get up to 30 percent of the money recovered from the contractor.

Lawyers for the former Custer Battles workers said the Bush administration refused to join in the lawsuit, arguing that the CPA was not a government entity and therefore the government could not have been defrauded. CPA documents say two of the contracts cited in the lawsuit were paid for at least in part with money seized from the former Iraqi government.

"This is corruption at its worst," said Alan Grayson, the lead lawyer for the whistle-blowers.

Custer Battles, a small company based in suburban Washington, was one of many private security companies which rushed into postwar Iraq to snap up contracts to guard people and installations. Two former Army Rangers active in Republican politics formed the company: Scott Custer and Michael Battles.

One of Custer Battles' first jobs was a $16.8 million no-bid contract to provide security at Baghdad International Airport. The U.S.-organized Coalition Provisional Authority, which provided civilian governmental functions during the occupation, then hired Custer Battles for $24.4 million to provide support such as housing and transportation for the program to replace Iraqi currency that had carried deposed President Saddam Hussein's portrait.

Custer Battles also won several other security or logistics contracts or subcontracts in Iraq.

Isakson and Baldwin say in the lawsuit they were fired when they objected to Custer Battles' business practices. When he was fired as the company's country manager for Iraq, the lawsuit says, Custer Battles employees held Isakson at gunpoint, disarmed him and sent Isakson and his 14-year-old son in a taxi from Baghdad to Amman, Jordan.

The lawsuit says Custer Battles billed the CPA for work that was never done, employees that were never hired and equipment that never arrived. The suit accuses Custer and Battles of setting up front companies in the Cayman Islands, Cyprus and Lebanon to create phony leases that boosted the firm's profits.

The lawsuit said Custer Battles took at least one and as many as eight forklifts from Iraqi Airways at the airport, repainted them to cover their former markings and billed the CPA for leasing them at thousands of dollars per month.

Battles got into the security business after losing a Republican primary for the Rhode Island U.S. House seat held by Democrat Patrick Kennedy. A Federal Election Commission audit of Battles' campaign found several violations of campaign financing laws, including the taking of more than the $1,000 limit from some individuals and failing to report its finances properly.

Custer gave $500 to Battles' campaign and $300 last year to Sen. Lincoln Chafee, R-R.I.