British Food Company Slapped With U.N. Bid-Rigging Scheme Suit

The world's largest food services company is facing a new lawsuit alleging that its involvement with bid-rigging of U.N. procurement contracts resulted in up to $856 million in damages to a longtime vendor of the international organization.

ES-KO International, a Monaco-based food services firm, is suing Compass Group and its subsidiary Eurest Support Services (ESS), claiming the British-based parent firm Compass essentially stole U.N. peacekeeping contracts it deserved through an "active criminal conspiracy" and "pattern of racketeering activity" that occurred over six years. ES-KO also claims the alleged schemes undermined its business relationship with the United Nations.

The lawsuit, a copy of which has been obtained by FOX News, was filed in the U.S. District Court for the Southern District of New York. ES-KO also claims that a firm called IHC Services, which does supply business with the U.N. on behalf of numerous companies, including ESS, was part of the schemes. ESS had previously held food services contracts for U.N. peacekeeping forces worth as much as $350 million.

• To read the lawsuit, click here (pdf).

ES-KO is seeking at least $123 million in damages but hopes to be awarded up to $856 million, based on factors such as interest on foregone earnings, and other damages available under the Racketeer Influenced and Corrupt Organizations (RICO) Act and other federal and state business and trade laws.

"We believe that ES-KO should have been awarded all the contracts that in fact were awarded to ESS as a result of the bid-rigging scheme, and that the damages that we've alleged in the complaint represent the lost profits that ES-KO would have received on both the contracts that were improperly awarded to ESS and also a significant reduction in the profits that ES-KO received on several additional contracts as a result of this bid-rigging scheme," said Sigmund Wissner Gross from Brown Rudnick, which filed the lawsuit on behalf of ES-KO.

This is not the first lawsuit Compass has been slapped with for alleged misconduct related to how it won various contracts from the scandal-ridden United Nations Procurement Division.

Earlier this month, Switzerland-based Supreme Foodservices AG filed a complaint in the same New York court, claiming it was owed $125 million in damages after being shut out of the bidding process for peacekeeping services contracts by Compass and other competing companies and individuals under the same circumstances described by ES-KO.

Both lawsuits come after investigations by FOX News last June revealed that a longtime U.N. procurement officer, Alexander Yakovlev, had maintained a secret Caribbean bank account and had an improper relationship with IHC as early as 1996. It was later revealed that his bank account contained nearly $1 million in bribes relating to at least $79 million in U.N. contracts.

The Russian national pleaded guilty last August to fraud and money-laundering charges. IHC CEO Ezio Testa also hired Yakovlev's son to work at IHC headquarters in New York City.

ES-KO: Compass Cheated Us Out of Contracts

In the latest lawsuit, ES-KO claims Compass and ESS, together with IHC and Yakovlev, engaged in a "criminal scheme and conspiracy to rig bidding for the award of hundreds of millions of dollars of United Nations contracts for food and related services to be supplied to peacekeeping missions around the world."

ES-KO claims that there's no way Compass could have put in some bids for various procurement contracts without having received inside information regarding ES-KO's own bids; in many instances, it was Yakovlev who handled these bids.

Compass released a statement Wednesday saying: "Compass Group PLC has been informed that a further U.S. complaint has been issued, but not served, by a competitor, ES-KO International, Inc., making allegations in connection with U.N. contracting. A preliminary review indicates that the damages claimed bear no relation to the value of the U.N. contracts awarded to ESS and the complaint will be resolutely defended."

From 1999 through late 2005, the lawsuit alleges that Compass Group and ESS conspired with New York-based IHC to bribe U.N. officials, including Yakovlev, and to engage in related misconduct to steal valuable U.N. contracts that otherwise would have been awarded to ES-KO.

On the U.N. Procurement Division's Web site is a statement saying vendors should work directly with the department instead of going through intermediaries; IHC is considered a "vendor intermediary."

The ES-KO suit says top U.N. budget official Vladimir Kuznetsov assisted Yakovlev in the bid-rigging scheme. Kuznetsov has been indicted for laundering money for Yakovlev; he has pleaded not guilty to those charges.

Other companies and individuals named in the suit include: Peter Harris, a Compass board member who was also CEO of ESS; senior ESS executive Andrew Seiwert; IHC Services; Testa; several other Compass/ESS executives like Len Swain and Steve Kemp; and Yakovlev's son, Dmitry.

Last October, FOX News revealed that Testa had leaked confidential U.N. procurement bid information to ESS five days before the United Nations gave ESS a $62 million contract to feed peacekeepers in Liberia. At the time, U.N. officials estimated the total value of ESS food contracts with the United Nations at $237 million, with renewals and add-ons that could reach $351 million. Since the FOX News report, three ESS executives have been fired, and both ESS and its parent Compass are under investigation by U.N. and U.S. federal authorities.

During the years in question, the ES-KO lawsuit alleges, Compass Group and ESS are to blame for $123 million in damages. That amount also includes reductions in ES-KO bids and profit margins that it actually won when the company thought it faced a legitimate competitor in Compass when vying for contracts in places like Sierra Leone, Congo, Kosovo, Eritrea, Cyprus, Liberia, Burundi and Haiti.

As of Wednesday, ES-KO lawyers say, another $32.8 million in pre-judgment interest money can be tacked onto that total — that's the amount of money ES-KO claims it has lost since the alleged crime was committed, and that amount increases each day the lawsuit is unresolved. Add in punitive damages and money ES-KO might be eligible to receive under federal and state racketeering and trade laws, and the amount that could be awarded to ES-KO reaches $856 million.

ES-KO also claims that IHC illegally obtained and unlawfully used ES-KO's proprietary, confidential information and engaged in other illegal conduct to secure the contracts for itself.

The company's databases include information on the consumption habits and preferences of U.N. peacekeeping troops from various countries and has supply and storage points for food deliveries to various U.N. missions around the world. This information allows ES-KO to submit what it says, according to the lawsuit, are "uniquely well-designed proposals" as it tries to win U.N. contracts. It claims Compass has no similar experience with such contracts; as of March 21, 2006, Compass is not a qualified vendor, according to the procurement division's Web site.

From 1999 to 2005, "notwithstanding its expertise and the technical superiority of its proposals and its pricing, numerous bids by ES-KO for contracts from the United Nations were unsuccessful as a result of the active criminal conspiracy among the defendants," the suit claims.

"Due to this lack of experience, know-how and expertise, ESS would not have been awarded any of the contracts at issue but for the bid-rigging scheme and related illegal conduct of Compass Group/ESS and its co-conspirators," it continues.

The contracts in question are for food and related services to be provided to U.N. peacekeeping forces in East Timor, Lebanon, Syria, Liberia, Eritrea, Burundi, Cyprus, Kosovo and Sudan. ES-KO, which has done business with the United Nations for years servicing more remote areas of the world with its products, says that it should have easily won those contracts, based on its track record of success in this area, on the technical merit of the proposals it submitted, its pricing and other factors.

The lawsuit also questions whether outgoing Compass CEO Michael Bailey was part of the scheme.

It says Bailey was often in New York during the time in question and was closely involved with Compass executive Harris in forging the initial business relationship between Compass, ESS and the United Nations. Although the lawsuit does not name Bailey as a defendant, it says it reserves the right to do so if further investigation of the matter finds he had personal knowledge or involvement in any bid-rigging.

Bailey is due to leave the company in June of this year. Compass announced last week that he will be replaced by Richard Cousins, former CEO of BPB, a plasterboard and gypsum plasters supply company.