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U.N. Procurement Scandal: A Secret Sales Deal

In mid-May, 2005, the secretive owners of IHC Services (search), a United Nations supplier firm that was about to emerge near the center of a multimillion-dollar U.N. procurement scandal, suddenly decided to get rid of the company — one month before the scandal exploded in public.

Less than a month later, on June 3, 2005, the sale finally closed at a meeting held in the Milan offices of Torno S.A.H. (search), a mysterious, Luxembourg-based firm that was the formal owner of IHC. During the closing, all of IHC’s directors resigned. The new directors who took power in the transaction (pdf) represented another mysterious firm named Strategic International Alliance Limited (search), registered in the British Virgin Islands, a tax haven where the names of corporate owners and directors are concealed from public scrutiny.

Not all the individual names are concealed, however, on copies of the sale documents for IHC, some of which have been obtained by FOX News in heavily redacted form. Two of the names representing the anonymous buyers are identical to the names of executives of Eurest Support Services Worldwide (search), or ESS, a huge food service firm that has done hundreds of millions of dollars worth of food-related business with the United Nations over the past five years, and is now being probed by U.N. and U.S. federal investigators for irregularities in that bidding. ESS is in turn a subsidiary of British-based Compass Group (search), self-described as the world’s largest food service firm, with sales of more than $21 billion in 2004.

One of the names listed in the IHC closing documents (pdf) obtained by FOX News is that of Andy Siewert, which is also the name of a mid-level ESS executive with close ties to IHC’s former owners and management. Another is that of Peter Harris — which is also the name of the CEO of ESS, an executive who is also in charge of Compass Group activities in Britain and Ireland, the Middle East and Africa, and is, according to the company Web site, a member of the parent company’s top management team.

In the closing documents obtained by FOX News, Peter Harris is not only named as a representative of the buyers, but also signs as a director (pdf) of Strategic International Alliance Limited, the new corporate owner. He signs a second time(pdf) as a director of the newly purchased IHC Services on an attached security guarantee. The same Peter Harris signs a third time as the specially authorized representative of the newly owned IHC to negotiate and supervise the employment agreement for Ezio Testa, the previous and current CEO of the company, who is elsewhere named in the documents as a new director of the company.

In a brief telephone conversation with FOX News, Peter Harris, the ESS/Compass Group executive, denied any knowledge of the new ownership of IHC Services and said he had “never heard of” Strategic International Alliance Limited.

(EDITOR'S NOTE: Following the initial publication of this story on Oct. 20, Compass Group suspended Peter Harris. The company, in a statement, said it "... has instructed [the international law firm] Freshfields Bruckhaus Deringer to conduct an investigation into the relationships between Eurest Support Services (ESS), IHC and the United Nations. Pending progress in that investigation, the Company has decided that Peter Harris, the CEO of the Group's UK & Ireland, Middle East and Africa division, should be suspended.")

But the ESS executive is undoubtedly well aware of IHC Services through other ties between that firm and his own. In its main line of business, IHC Services is a “vendor intermediary,” a firm that helps other firms obtain contracts with the U.N. and other organizations for goods and services. ESS is not named by IHC among its clients on the IHC Web site. But according to an ESS Web site press release dated Sept. 13, 2004, ESS established an unspecified “Best in Class” partnership with IHC for future business, a partnership hailed in the same press release by ESS’s CEO Peter Harris. The ESS executive named to manage that new relationship, according to the same press release, was Andy Siewert.

FOX News has since discovered other, questionable ties between the two companies. On Oct. 7, FOX News revealed that in 2003, just days before the U.N. was to formally decide on the winner of a $62 million food contract for peacekeepers in Liberia, Ezio Testa, the CEO of IHC, had emailed highly confidential U.N. information on the bid to Siewert, who is also named by food industry insiders as the company’s chief liaison officer with the United Nations procurement department. The information in Testa’s e-mail was supposedly protected by a foolproof U.N. bidding process and was for designated U.N. officials only. ESS was later named the winner of the contract.

Last week, the United Nations formally asked ESS to explain why this unauthorized information was in corporate hands, and why the world organization was not immediately told about it when the secret information arrived. ESS has so far offered no reply, according to a U.N. spokesman.

IHC is close to the center of the United Nations procurement scandal that first began to come to light on June 20, 2005, when FOX News revealed that the company had hired the son of Alexander Yakovlev (search), a United Nations procurement officer, in contravention of U.N. conflict-of-interest rules. At the time, IHC was supplying the U.N. with $1.8 million worth of portable generators in a contract negotiated and managed by Yakovlev. FOX News also revealed that Yakovlev had established a secret Caribbean bank account. Two days later, Yakovlev resigned.

He was arrested by U.S. authorities on August 9 and pleaded guilty to corruption, wire fraud and money laundering; he is now cooperating with federal authorities. According to the Volcker committee investigating the multibillion-dollar Oil for Food (search) scandal, investigators discovered nearly a million dollars worth of bribes in Yakovlev’s bank account, related to some $79 million in U.N. contracts.

Yakovlev, as it happens, also was the U.N. procurement officer on the controversial $62 million food contract for Liberian peacekeepers that was won by ESS, and on many other peacekeeping food contracts.

Since 2000, ESS has won food contracts via the U.N. procurement department with U.N. peacekeeping forces in places such as East Timor, Liberia, Burundi, Eritrea, Lebanon, Cyprus and Syria. The company recently won an additional contract to fee the expanding peacekeeper force in Sudan. U.N. officials estimate the total value of current peacekeeping contracts with ESS at more than $237 million. Including optional renewals and add-ons, the total could run as high as $351 million.

The closing documents for the sale of IHC Services obtained by FOX News still leave many questions unanswered about the firm’s new owners. The entire deal took place within a network of secretive companies based in Luxembourg, the British Virgin Islands, and the British offshore tax haven of Guernsey, and was structured in a way that keeps the ultimate identities of both the new and old owners secret.

Even while he is named as a director of Strategic International Alliance Limited and its authorized representative for the compensation of IHC’s CEO, it is not clear that Peter Harris — whoever he may prove to be — is among the new owners.

From the documents, it appears that Strategic International Alliance Limited is an offshore shell company, based in the British Virgin Islands and with representative offices in another haven of corporate anonymity, the British Channel Isle of Guernsey. Strategic International is in turn owned by another company, Oak Directors Limited (search), of unknown registry and ownership.

Approval of the IHC purchase “for and behalf of Oak Directors Limited” is contained on a certificate (pdf)signed by individuals named Mark Courtney Chasey and David Michael Willis, with no other designation. In a faxed reply to FOX News, Mark Chasey declared that he and Willis are directors of Oak Directors. He also confirmed what FOX News had discovered in British Virgin Islands registry documents, that Strategic International Alliance Limited had changed its name to Alliance Investment Development Ltd., effective June 2, 2005 — the day before the IHC sale. Chasey also declared that "I am not authorized to disclose the identity of its shareholders."

To make the deal even murkier, FOX News has discovered British Virgin Island registry documents (pdf) that change the name of Strategic International Alliance Limited to Alliance Investment Development Ltd., effective June 2, 2005 — the day before the IHC sale.

What UN and federal investigators probing the procurement scandal know about the complex deal is also a mystery.

George Russell is Executive Editor of Fox News. Claudia Rosett is journalist-in-residence with the Foundation for the Defense of Democracies