Kerry Khan & Lee Khan plead guilty in USACE bribery scandal
Kerry Khan worked for the Army Corps of Engineers from 1994 until the time of his arrest, in October 2011. He was a program manager and contracting officer’s technical representative with the Directorate of Contingency Operations. In that position, Kerry Khan had authority, among other things, to place orders for products and services through federal government contracts. He also had authority to certify that the work on orders had been completed.
The scheme involved the Army Corps of Engineers and two contracts: the Technology for Infrastructure, Geospatial, and Environmental Requirements (TIGER) contract and the Contingency Operations Readiness Engineering & Support (CORES) contract.
The TIGER contract was used by authorized federal government agencies and departments to purchase products and services. It is what is known as an Indefinite Delivery/Indefinite Quantity contract. Authorized agencies and departments are not required to obtain three separate bids or to compare the TIGER contract to another contract before submitting an invoice for products and services through the TIGER contract.
The CORES contract was a planned contract, envisioned as an alternative or potential replacement to the TIGER contract. As planned, the CORES contract would be a five-year contract with an award potential for all contracts placed under it of nearly $1 billion. The CORES contract has not been issued for solicitation to potential prime contractors.
In his guilty plea, Kerry Khan admitted to carrying out a bribery scheme with others.
They included Alexander, a colleague, who was then a program manager with the Army Corps of Engineers; Babb, the former director of contracts at Eyak Technology LLC (EyakTek), an Alaska Native-owned small business; Alex N. Cho, the former chief technology officer of Nova Datacom, LLC, a provider of information assurance and security services to federal agencies and commercial companies; Robert L. McKinney, the president of Alpha Technology Group, Inc., a provider of program management services, James Edward Miller, formerly of Virginia Beach, Va., the owner of Big Surf Construction Management LLC, and an unindicted co-conspirator, referred to in court documents as Co-Conspirator 3, who was another contractor.
Another company, Ananke, LLC, also was involved in the scheme. Ananke, LLC was a shell company that was controlled by Kerry Khan.
According to a statement of offense signed by Kerry Khan, in or around 2006, he and Alexander agreed to work together to obtain government contracts for corrupt contractors who would reward them with bribes. Among others, Kerry Khan and Alexander worked with Babb on a scheme to use EyakTek as a vehicle for channeling contracts awarded by the Army Corps of Engineers. EyakTek, in turn, hired sub-contractors that submitted fraudulently inflated or fictitious quotes for equipment and services. As directed by Kerry Khan and Alexander, the sub-contractors kicked back a significant portion of the payments to them, as bribes for keeping the money flowing their way from the Army Corps of Engineers.
Kerry Khan and the others attempted to obtain more than $30 million through the bribery scheme primarily through the submission of fraudulently inflated invoices to the government, according to the statement of offense. The fraudulently inflated amounts were referred to by the perpetrators as “overhead.” Kerry Khan, Alexander, and the contractors agreed to split the “overhead.”
As part of his plea, Kerry Khan admitted obtaining and attempting to obtain these payments:
- Nova Datacom: Kerry Khan, Alexander, Cho, and Nova Datacom attempted to obtain more than $20 million in “overhead” on a total of $45 million in contracts.
- Alpha Technology: Kerry Khan, McKinney, and Alpha Technology Group obtained approximately $856,395 in “overhead” on a total of $1.8 million in contracts.
- Big Surf Construction: Kerry Khan, Babb, Miller, and Big Surf Construction Management LLC attempted to obtain $9,979,705 in “overhead” on a total of $9.9 million in contracts and intended contracts.
- Co-Conspirator 3: Kerry Khan obtained approximately $640,000 in bribe payments from Co-Conspirator 3.
- Ananke, LLC: Kerry Khan and Babb obtained $147,544 in “overhead,” through contracts in that amount that were directed to Ananke, LLC.
From those amounts, Kerry Khan admitted actually receiving, directly and indirectly, over $12 million from the contractors. He also admitted that, at the time of his arrest, he was owed more than $14 million in additional “overhead” payments from the contractors.
In addition to these activities involving the TIGER contract, according to the statement of offense, Kerry Khan, Alexander, Babb and Cho agreed to steer the award of the CORES contract to Nova Datacom. This scheme was thwarted by the arrests of Kerry Khan, Alexander, and others last fall.
In an attempt to surreptitiously receive and hide the receipts of proceeds of the bribery scheme, Kerry Khan and Lee Khan admitted today that they established and used multiple corporate entities, including shell companies that had no legitimate business purpose, as well as multiple bank and financial accounts. Kerry Khan and Lee Khan also purchased or paid off the mortgage for at least a portion of at least 13 pieces of real property, including several houses and condominiums, using proceeds of the scheme. Additionally, Kerry Khan and members of his immediate family owned in full 10 automobiles, most of them luxury vehicles that were purchased with proceeds of the criminal activities.
With instruction and supervision from his father, Lee Khan managed the portfolio of real property and automobiles, selling real property after its value had appreciated, managing the lease of certain real properties to tenants, and selling automobiles.