Agility Attempts to Vault Fraud Charges

Photo by Pratap Chatterjee

by Pratap Chatterjee, Special to CorpWatch
February 1st, 2010

Agility, a Kuwait-based multi-billion dollar logistics company spawned by the U.S. invasion of Iraq, is facing criminal charges for over-billing the U.S. taxpayer on more than $8.5 billion worth of food supply contracts in the Iraq war zone. If the lawsuit,  scheduled for February 8, is successful, the company could owe the U.S. government as much as $1 billion.

Originally known as Public Warehousing Corporation (PWC), Agility boasts that it once supplied one million meals a day to U.S. soldiers and contractors in the Middle East. The company’s Mercedes trucks hauled delicacies from ice cream to lobster tails to feed soldiers living on military bases scattered throughout Iraq. Today it has new contracts to provide food to the U.S. Agency for International Development in Djibouti in the Horn of Africa and – until about a month ago – was supposed to ramp up food delivery to the troops newly posted in southern Afghanistan.

In a lawsuit filed on November 18, 2005, Kamal Mustafa Al-Sultan accuses Agility of cheating him of a share of profits from the lucrative contract because he refused to go along with alleged corruption. A former business partner of PWC/Agility, Sultan is a cousin of the company founder and CEO, Tarek Abdul Aziz Sultan Al-Essa.

After conducting a grand jury investigation, the U.S. Department of Justice (DoJ) joined Kamal Sultan and filed criminal charges against PWC/Agility on November 9, 2009, immediately boosting the original lawsuit’s chances of success.

“We will not tolerate fraudulent practices from those tasked with providing the highest quality support to the men and women who serve in our armed forces,” said Tony West, assistant attorney general for the District Court for the Northern District of Georgia, in a press release. “As this case illustrates, the Department of Justice will investigate and pursue allegations of fraud against contractors and subcontractors, whether they are foreign or domestic.”

Joint Venture Leads to Fall Out

PWC was part of the Sultan family’s business empire that is grounded in high-end supermarkets and mega-stores across the Middle East. (See Sidebar.) Starting in the late 1990s, Tarek Sultan teamed up with ex-U.S. soldiers to bid on lucrative U.S. government projects. PWC’s first major contract, initially advertised in May 2002, was for a U.S. Defense Supply Center called Prime Vendor Subsistence to supply food eaten on U.S. military bases in the Middle East in anticipation of the invasion of Iraq. (Halliburton/KBR cooks and serves the food, but it does not supply it.)

At the time, Tarek Sultan had no experience in food supply, nor did he have a personal track record with the U.S. military – a requirement for bidding on the contract. However, KMSCO – run by his cousin, Kamal Sultan – had multi-million dollar U.S. military contracts dating back to1996 for “life support, food supplements, and ice.” In a January 2007 interview with CorpWatch, Kamal Sultan says he agreed to create a joint venture with Tarek in June 2002 to provide PWC with the qualifications to bid.

The Sultan Family

In 1981 the family of Jamil Sultan al-Essa, a Kuwaiti family whose heritage has been alternately described as southern Iraqi and Saudi, opened Kuwait’s first self-service store near the Shuwaikh Port. It focused on hardware and do-it-yourself products. Almost three decades later, that store had evolved into a chain of 11 Sultan Centers scattered around Kuwait. In 1999 the Sultans expanded the retail chain to Oman, and in 2003 they acquired the Safeway chain in Jordan.

The Sultan Center supermarkets sit in or near some of Kuwait’s fanciest shopping malls, and sell a wide range of consumer goods including Horizon Organic milk flown in from the U.S. (at $22 a half gallon), mangosteens from Thailand, tents for desert camping, and shoes. The brightly lit, modern stores offer one-stop, 24-hour-a-day shopping to wealthy Kuwaitis and expatriates, often trailed by maids pushing over-laden shopping carts.

Like many wealthy Middle Eastern families, the Sultans have multiple businesses, each operated by a sibling or cousin with overlapping ownership and often senior government positions. One, Abdul Aziz Sultan al-Essa, was chairman of Kuwait’s Gulf Bank. Another, Kamal Sultan, ran the local franchise for Apple. Yet another Sultan venture, National Real Estate corporation, bought up 25 percent of the shares of a state-owned company, Public Warehousing Corporation (PWC), when it was privatized in 1997.

PWC was given to Abdul Aziz’s son, Tarek Sultan al-Essa, who is a dual Kuwaiti-U.S. citizen and a graduate of the University of Pennsylvania’s Wharton School of Business. When Tarek Sultan took over PWC, the company was already charging the U.S. military $60,000 a month to operate Camp Doha on a 1.6 million-square-meter property near Shuwaik port in Kuwait.

In the late 1990s Tarek Sultan hired Toby Switzer, a 20-year veteran of the U.S. Navy Supply Corps, who had extensive experience in U.S. military logistics. When the invasion of Iraq began, Switzer started to visit the U.S. military bases on a regular basis to offer services to the military. As a former soldier, Switzer was able to gain access easily. Indeed, he was invited to events such as the May 2003 Naval Supply Corps birthday party at Camp Patriot with his former comrades in the military supply business.

After the Iraq invasion, Tarek Sultan and Toby Switzer turned to Eric Stagliano of the Lucas Group in Atlanta, an executive search firm that specializes in helping ex-soldiers land jobs. With Stagliano’s help, PWC soon built up a team of former military officers to trawl for business and write up bids to send to the military contract managers in Kuwait and the States. A former PWC employee told CorpWatch: “It’s much easier for a former soldier with a crew cut and shiny shoes to get a contract than any foreigner, even a wealthy Arab.

A year later in May 2003, PWC won the initial Prime Vendor contract. Soon after that, Kamal Sultan alleges, PWC officials asked him to take part in a scheme to defraud the military. When Kamal refused, Tarek Sultan dropped KMSCO from the contract, thus depriving Kamal Sultan of his expected 30 percent profit share. Over the next four years the two men waged a series of legal battles in Kuwaiti courts, with each side alternately gaining the legal upper hand.

Overcharging Allegations

The court cases exposed a scheme of “prompt payment discounts.” It works like this: Company A (a shell company) buys a pound of chicken for $1 and gives it to Company B (e.g., PWC) along with a bill for $1.10. Then Company B sells it to the military for $1.10 plus the agreed-on overhead and profits. Next, Company B pays Company A $1.10 and pockets the ten cent mark-up from Company A as a prompt payment discount.

In this case, Company B has effectively earned the agreed-upon (and legal) profits from the military plus an extra ten cents that the military would never have paid if it bought it directly from company A. At the very least, this system is a waste of taxpayer money. And if Companies A and B are owned by the same people, it may constitute fraud.

Kamal Sultan says that in June 2003, PWC officials asked him to use KMSCO to buy local produce, and re-sell it to PWC at an inflated price invoiced to the U.S. military. In his lawsuit, Kamal Sultan alleges that when he “refused to participate in this announced scheme,” the Sultan Center supermarket chain agreed to take over responsibility to supply local produce.

PWC/Agility spokesperson Jim Cox told CorpWatch in September 2008 that “prompt payment discounts” were written into the contract and therefore not illegal. In any case, they far exceeded the more typical two percent military discounts.

Asked about the relationship between PWC and the Sultan Center, Cox said that the two companies are distinct businesses, listed separately on the Kuwait stock exchange.

In fact, Tarek Sultan and family head Jamil Sultan al-Essa serve on each other’s boards, while Jamil and four other Sultan family members are the largest stockholders the in Sultan Center, and also control a large stake in PWC. The DoJ criminal indictment states: “the two companies had interlocking directorates with at least three directors in common.” PWC/Agility’s Cox explains that this cross-ownership is common and legal in Kuwait.

In the grand jury documents submitted to the courts in November 2009, however, the investigators cite multiple examples of collusion. An October 15, 2004 email from PWC officials asked the Sultan Center to alter figures so that “the temporary price decline in the catalogue will not be obvious to the DSCP (Defence Supply Center, Philadelphia).” It also quotes emails from Albuquerque-based Professional Contract Administrators (a consulting firm working for PWC) to tell Toby Switzer, the CEO of PWC Global Logistics, to “fire somebody, blame it on them, and cover up” the revisions in the Sultan Center’s local market prices “ASAP–THIS IS VERY SERIOUS.”

PWC is also alleged to have profited from “prompt payment discounts” from companies in the U.S. In early 2007 the DoJ began a series of investigations into the company’s pricing practices, alleging that PWC had overcharged the Pentagon by as much as $374 million “by inserting a related company to inflate the amount billed.”

One PWC supplier that the DoJ investigated was American Grocers Inc., which provides foods such as Smucker’s peanut butter to the Sultan Center for resale to PWC in Iraq. In July 2009 American Grocers owner Samir Itani, a Houston-based Lebanese-American businessman, was convicted for tacking on “bogus trucking charges.”

Another company under DoJ scrutiny is Ocean Direct LLC, owned by Richmond Wholesale Meats Inc. of California. At one point, it was supplying $2.3 million a month worth of raw cold-water lobster tails to the military at $21 a pound while the average wholesale price at that time was between $17.60 and $18.75 a pound.

An October 2007 Wall Street Journal investigation revealed that PWC appeared to have also taken advantage of revolving doors between the military officials who hand out logistics contracts and the vendors that bid on them.

For example, when PWC bought poultry, ham, sausage and bakery products from Sara Lee, the Illinois-based company paid PWC five percent of the purchase price. The agreement, which began in 2003, was negotiated by a Sara Lee executive in charge of military sales, Paul Simmons, who was previously a chief warrant officer for the Army.

One of his counterparts on the military side is David Staples, a senior procurement official for the Army who formerly worked at Sara Lee’s Jimmy Dean Sausage unit. Staples went to work for the Army after his predecessor, Emily Prior, quit. Prior now works for Quantum Foods, in Illinois, which supplies beef to troops in Iraq. She also represents Perdue Chicken, another company that sells food to the military.

Agility Expands

As the Iraq war dragged on, PWC made billions from its contracts with the military. By late 2005, it had billed the U.S. $4.6 billion under the Prime Vendor contract, according to Kamal Sultan’s 2005 lawsuit. Four years later, according to the criminal charges brought by the DoJ, the amount billed had almost doubled to $8.5 billion.

Awash in cash, courtesy of U.S. taxpayers, Tarek Sultan embarked on a buying spree, snapping up companies around the world. In December 2006 PWC changed its name to Agility.

From managing a few warehouses in 2003, PWC/Agility was suddenly in the same league as global logistics giants FedEx and DHL. Like many multinational corporations, it signed on to the World Economic Forum’s “Partnering Against Corruption Initiative” where it has committed to zero-tolerance policies toward bribery and pledged to implement anti-corruption programs.

Today, Agility operates ports in Dubai, and runs shipping companies out of New Orleans. The company boasted to the Los Angeles Times that it was capable of “hauling giant mining equipment through the jungles of Papua New Guinea, or erecting stage sets in Asia for touring rock groups such as the Doobie Brothers.”

Wining and Dining the U.S. Military

Senior PWC staff regularly wined and dined army officials at five-star hotels including the Hilton Resort in Kuwait, as well as in the States to obtain military contracts, according to accounts provided by several former PWC officials to CorpWatch.

At least one such instance has been confirmed in a court hearing in Illinois in January 2008 when Peleti “Pete” Peleti, a former U.S. Army warrant officer at Camp Arifjan, Kuwait, pleaded guilty to accepting bribes from an unrelated company. At the hearing, government investigators confirmed that Peleti told them that Dan Crighton of PWC had taken him to the Super Bowl game in Detroit, Michigan, in January 2006.

In June 2005 PWC won part of the $1.5 billion Heavy Lift 6 contract to move all the military equipment from the Kuwait ports to Baghdad, sharing the award with IAP, a Florida-based contractor. PWC’s October 2006 purchase of an Alabama-based company, Taos, made it the main supplier of guns to the Iraqi army and police force. (see “One Million Weapons to Iraq; Many Go Missing.”)

The Heavy Lift contract is an example of how the company won bids despite its lack of qualifications. After wining and dining the military contracting officers at resorts in Kuwait, PWC executives obtained the Heavy Lift 6 draft bid documents four months before the published bid, multiple sources told CorpWatch,. The two men involved – Maj. Anthony Kramm who was in charge of the bidding and John Arnold of PWC – are both ex-101st Apache helicopter pilots from the same class at West Point.

Since it did not have the minimum number of trucks to qualify for the bid, the company would never have qualified for Heavy Lift in 2004 without advance knowledge. When the “request for proposals” was published, the company showed the military a fleet of borrowed “low-boy,” “reefer” and “flat-bed” trucks to prove that could fullfill the contract (reefers are refrigeration trucks and low-boys have low beds). As soon as it won the contract, PWC paid Mercedes to set aside an entire assembly line in Stuttgart for four months to build 1,800 trucks.

The U.S. “war on terror” continues to be a profitable source of business for the company. In 2008, Matrix, an Agility subsidiary in the United Arab Emirates, was contracted to fly turbines and transformers from Germany and Mexico to a power plant in Afghanistan. That contract is now the subject of a $20 million dispute with the company building the plant: Black & Veatch of Kansas. (For more on the power plant, (see “Black & Veatch’s Tarakhil Power Plant: White Elephant in Kabul.”)

In 2009, Agility announced revenues of $6.8 billion, a staff of 37,000 employees with 550 offices in 120 countries around the world, making it one of the world’s eight biggest logistics companies.

Supporters and Critics

The company has powerful supporters in the military. Its brochures quote Gen. David Petraeus, now the head of U.S. Central Command: “Agility has performed a miracle across Iraq.”

Some see less miracle and more profiteering. Rory Mayberry, a Halliburton/KBR food production manager for a dining facility at Camp Anaconda testified before Congress in June 2005: “For example, tomatoes cost about $5 a box locally, but the PWC price was $13 to $15 per box. The local price for a 15-pound box of bacon was $12, compared to PWC‘s price of $80 per box. PWC charged a lot for transportation because they brought the food from Philadelphia,” he said.

“They get options, privileges, that no one else can get, because they used to be part of the (Kuwaiti) government,” says Saad Salem Al-Qattan, a Kuwaiti business man who owns Al-Rakeb Company Petroleum Electricity & Construction Services (RAPICO) which is involved in a land dispute with PWC/Agility. Asked about the U.S. military contracts, he shrugs: “They (PWC/Agility) are greedy, and the (U.S.) military doesn’t know where to go.”

Several lawsuits have been filed against the company. Beth Hanken, an Iowa businesswoman, sued PWC/Agility when she lost contracts to supply pork to the military. The case was dismissed. The only lawsuit that has so far stuck is Kamal Sultan’s 2005 charge against PWC and its top officials – Tarek Sultan, Toby Switzer, and Emad Al-Saleh, PWC‘s deputy director (who now heads an investment management company called North Africa Holding).

After the court unsealed the records in November 2009 when the DoJ joined Kamal Sultan’s lawsuit, PWC/Agility posted a statement on its website: “Kamal Mustafa Sultan, owner of Kamal Mustafa Sultan Company … has a long history of strong animosity towards PWC, its officers and its employees.” PWC/Agility added that Kamal has filed more than 40 court actions against PWC, its executives and its employees in Kuwaiti courts, but that “all of the court actions have been unsuccessful.”

But whether or not Agility wins in court, it is already losing at the cash register. Immediately after the DoJ joined the case, the Pentagon barred PWC/Agility and its subsidiaries – including Taos of Alabama and Matrix from the UAE – from federal contracts by placing it on the “Excluded Parties List System.” DynCorp, a business partner, followed suit in late December by dropping PWC/Agility from a major U.S. military logistics contract in southern Afghanistan.

In November, PWC/Agility said it “is confident that once these allegations are examined in court, they will be found to be without merit.” Since then PWC/Agility has attempted to reach a settlement with the DoJ by offering to pay a $600 million fine, according to reports in the Kuwaiti press. “No agreement has been reached so far and there is no guarantee these negotiations will lead to a solution,” the company stated at the end of December.

A criminal arraignment of PWC/Agility scheduled for early January has been postponed five times so far, the latest delay coming at the eleventh hour on January 29. U.S. Magistrate Christopher Hagy agreed to a new date of February 8, although he expressed exasperation. “There’s a point at which this stops,” Hagy said.

Unless these settlement discussions bear fruit, the arraignment could lead to a trial in which spectators can expect a fascinating view into the extent of corruption engendered by the U.S. occupations of Afghanistan and Iraq. (Click HERE for original article)

Other Related Posts From Ms Sparky

1. US moves to drop charges against Kuwait’s Agility
2. Kuwait logistics firm Agility pleads not guilty to US fraud charges
3. MG Dan Mongeon, USA (Ret.), his supeona stands, new charges against Agility possible
4. Agility U.S. Unit Fraud Charges to Be Dropped
5. Kuwait Agility to pay $600M in DoD fraud case (updated)

Written by Ms Sparky. This entry was posted on February 2, 2010 at 9:02 am and is filed under Agility/PWC/GCC, GOV. CONTRACTORS, Indictments, Convictions & Arrests, LOGCAP III - KBR, Qui Tam, Reports & Investigations. You can follow any responses to this entry through the RSS 2.0 feed. Tagged Agility/PWC/GCC, Army CID*, Army Criminal Investigation Command*, Beth Hanken, Charles Tobias "Toby" Switzer, Dan Crighton, DFAC, DoJ*, DynCorp*, Excluded Parties List System (EPLS), IAP, John Arnold, Kamal Mustafa Al-Sultan, Kamal Sultan, Louis Berger/Black & Veatch, Maj. Anthony Kramm, Matrix, Ocean Direct LLC, Paul Simmons, Peleti "Pete" Peleti, Pratap Chatterjee, Professional Contract Administrators, Quantum Foods, Richmond Wholesale Meats Inc., Rory Mayberry, Tarek Sultan, U.S. Department of Justice (DoJ) You can leave a response or trackback from your own site.