Over the past decade, the U.S. military has outsourced its overseas base-support responsibilities to private contractors, which have filled the lowest-paying jobs on military bases with third-country nationals, migrant workers who are neither U.S. citizens nor locals. As of January 2014, there were 37,182 third-country nationals working on bases in the U.S. Central Command region, which includes Afghanistan and Iraq — outnumbering both American and local contract workers.

These laborers do the cooking, cleaning, laundry, construction and other support tasks necessary to operate military facilities. In Afghanistan they primarily come from India and Nepal and are employed by subcontractors for one of two large American companies, Fluor Corp. and Dyncorp International, which manage U.S. bases in Afghanistan under the Department of Defense’s Logistics Civil Augmentation Program. Dozens of subcontracting companies, mostly headquartered in the Persian Gulf, work on Fluor and Dyncorp contracts.

South Asian workers are at the bottom of the social hierarchy on U.S. bases. They earn far less than American or European contractors, work 12-hour days with little or no time off and, on some bases, aren’t allowed to use cellphones or speak to military personnel. On the base we visited, Camp Marmal, most were surprised and nervous when we approached them, concerned that talking to journalists could get them in trouble. One young man’s face contorted in terror when asked whether he had paid a recruiting fee. He shook his head no, fearful of any reprisals. “To come here, you have to use an agent,” another worker told us. “There is no other way. So we pay money to come.”

An agent is a person from a recruitment agency hired to find laborers for a company — in this case, the subcontractor. Sindhu Kavinamannil, a certified fraud examiner who has investigated labor networks between India and the Middle East, says there are tens of thousands of recruitment agencies in India and Nepal, the majority of them unregistered. They might be headquartered in large cities, she adds, but they each have hundreds of agents and subagents spread out across small towns and villages.

At Camp Marmal, the most prominent Fluor subcontractor is Ecolog International. One current Ecolog employee we met, who didn’t want to be identified, said he paid $4,000 to an agent in his village for a job he was told would pay $1,200 per month. His recruiter told him the final papers would be signed in Dubai, a crucial stopping point for workers en route to Afghanistan. In Dubai he learned his salary would be only $500 per month. Because he had borrowed money at a high interest rate to pay his recruitment fee, he had no choice but to work for an entire year just to earn enough money to pay off his loan.

“We can call this bonded labor or human trafficking, because it all starts with false promises about what the job is, and they have to pay an amount to get the job,” Kavinamannil explains. “Debt will make you work anywhere. It doesn’t matter if it’s a war zone.” When we reached out to Fluor, which manages Camp Marmal, the company said it “provides hotlines to allow individuals to report anonymously any suspected instances of human trafficking” and holds its subcontractors to a “zero tolerance policy regarding trafficking in persons.”

Yet that Ecolog employee’s experience is fairly typical. Of 75 people “Fault Lines” contacted who work or used to work on U.S. bases across Afghanistan, 65 said they paid agents fees ranging from $1,000 to $5,000. Many said their monthly salaries, generally $400 to $800, ran several hundred dollars short of what they were promised. Some paid fees, only to be warehoused by an agent for months and never receive a job. Nearly everyone we talked to was still paying back loans.

According to a former human resources manager at a major subcontractor in Afghanistan, who asked to remain anonymous, subcontractors intentionally steer potential South Asian job candidates through third-party recruiters. The workers we spoke with confirmed this experience, saying that when they attempted to apply directly to companies like Ecolog, they received no response or were directed to apply through an agent.

Why would a company outsource hiring when it receives direct applications? “Employees at the subcontractor are taking kickbacks from these agents,” the former manager told us. “They tell the workers to apply through the agent, and the agent gets money from (the workers). The agent splits some of that fee with the people in human resources.”

In other words, because taking fees from applicants is illegal, subcontractors outsource hiring to recruiters who are willing to pass a portion of their fees up the chain. As a result, applicants who pay recruiting fees are often indirectly paying their employer — the subcontractor — simply for the opportunity to work.

In Dubai, we tested these allegations by setting up an undercover meeting with an agent who recruits workers for Ecolog and Supreme Group, another contractor in Afghanistan. We posed as representatives from a fledgling U.S.-based subcontractor, looking to hire workers from India and Nepal for U.S. military contracts.

The agent explained that subcontractors like Ecolog do not actually pay him. Though his contract states that Ecolog owes him $300 for each worker he recruits, in reality, he said, he pays an Ecolog representative a small bribe to hire people from his candidate pool. His earnings come entirely from fees paid by job candidates. And it didn’t take long before the agent offered to give us $100 to $200 for each worker we were willing to hire from him.

When we contacted Ecolog, the company told us that the details of its arrangements with suppliers constitute sensitive information but that it is against company rules for its staff to receive funds from recruiters. The company added that it is also against its policy for employees to pay recruitment fees and that Ecolog welcomes direct applications.

The recruiter we met told us he has supplied 9,000 third-country nationals for Ecolog and Supreme contracts in Afghanistan.

This is the business model operating on United States military bases in Afghanistan and Iraq. It’s the same model used by employers in the oil-rich Gulf countries, which have long relied on cheap migrant labor from South Asia to build their economies. The crucial difference is that the trafficking of workers to U.S. bases is made possible by U.S. tax dollars.

According to Sam McCahon, a former Army judge advocate general officer who is an advocate for reforming the military contracting system, more than 500,000 contract laborers have worked on U.S. facilities since 2002. He estimates that this exploitive system has wasted over $15 billion of taxpayer money. And it has left tens of thousands of men from across India and Nepal deeply scarred and mired in crushing debt.

In India we visited two villages in the southern state of Tamil Nadu, from which hundreds of men have traveled to jobs on U.S. military bases. Govindnagaram (pop. 6,452) and Odaipatti (pop. 13,892) lie in the bucolic valley of the Nilgiri Hills, where, as farming incomes have dropped over the past decade, residents have had to look elsewhere for work. The area has become fertile ground for recruiting agents and loan sharks looking to reap quick profits.

“Farming isn’t like it used to be. Now most people use the land as collateral, and that’s how they go abroad,” explained Ganesan Subbaiah, who has worked as a cook with the U.S. military. Subbaiah sold his father’s farmland and his mother’s jewelry to pay an agent for a job with a U.S. military in Afghanistan. But after he arrived in Dubai to sign his contract, he was told he would be going to an American base in Djibouti for a much lower salary.

We spoke to dozens of men in the villages, and each of them had a story of deception, loss and humiliation in his quest for work. Some, so shattered by their experience, vowed never to look overseas for work again. Others held out hope for a direct line — sans agents — to a job on a U.S. base to pay off their outstanding debts.

For these men, the U.S. military’s regulations to discourage trafficking have had no impact. “We’ve already paid the agents for the job,” explained a man named Kumaran, who said his agent — after collecting a hefty fee — made him sign a declaration stating he had not paid anything. “If we tell the U.S. military that we paid a fee, they’ll just send us back, and we’ll lose everything.”

Another man, who had worked at Camp Taji in Iraq, remembered that upon arrival, his contractor required him and his colleagues to sign a Trafficking Awareness form, issued by the Department of Defense. “We all knew — and they knew — that we had paid,” he said, referring to his supervisors. “Oh, yeah, everybody knows.”

The only possibility for change, he thought, was if workers could be hired directly, without the need for a fee. But McCahon says that’s unlikely to happen because there’s so much money to be made under the existing contracting system. “American contractors make more profit off this process than if they hire the workers directly,” he says. “That’s because the U.S. government pays prime contractors, like Fluor and Dyncorp, on a cost-plus basis, which means the government reimburses all of their allowable costs and then typically pays them a fixed profit of 6 percent of those costs. Subcontractors have been reported to make profits of more than 75 percent by hiring cheap, trafficked labor and overcharging prime contractors. But the incentive is for prime contractors not to care — they incur more costs, and thus make more profit, by subcontracting it out.”

The U.S. government has been aware of inequities and violations in the military contracting system for at least eight years. In 2012 both the Obama administration and Congress issued new rules to curtail these problems. But no contractor has ever been prosecuted, suspended or fined for trafficking abuses on U.S. military contracts. When pressed for a reason, McCahon responded,“If you look at most of the defense contractors, the large entities, they tend to be staffed and headed by former generals. They still have friends in the Pentagon.”

The Department of Defense has yet to respond to “Fault Lines” for this report.

The auditing firm must be approved by the Justice Department, which is conducting a civil fraud inquiry into whether the company systematically overcharged the Navy in providing provisions and sewage-removal services for warships in the Middle East and Africa. Officials said the audit could help spur settlement talks between Inchcape and the Justice Department.

Former federal contracting officials said that the need to hire an outside auditor also showed how little the Navy had done to get to the bottom of the accusations against Inchcape since they first surfaced in 2010. In November, the Navy suspended Inchcape, saying that the company — which had received almost $300 million in Navy contracts — had displayed “conduct indicating questionable business integrity.”

“To wait for the Navy to do a serious audit is like waiting for Godot,” said Charles Tiefer, a professor at the University of Baltimore School of Law and a former member of the federal Commission on Wartime Contracting in Iraq and Afghanistan. “Considering that the Navy has sat on its hands for years, getting an accounting from a private firm is a sign of desperation.”

Asked why they had not conducted their own audit, Navy officials said they had not had “full access” to the documents subpoenaed from Inchcape. They said they were cooperating with the Justice Department and would review the work of the independent auditor.

The accusations against Inchcape, which is owned by the Dubai government, stem from a whistle-blower suit filed by a company employee in 2010. Employees asserted that Inchcape had received discounts from subcontractors and then pocketed the difference instead of refunding it to the Navy.

Court records show that the Defense Department issued a subpoena in 2011 ordering Inchcape to hand over all of its Navy billing records since 2002 to the Naval Criminal Investigative Service, which was assisting in the investigation. And in late 2012, a federal judge ordered Inchcape to give investigators a copy of an internal company audit from 2008 into some of the questionable billings.

But after Inchcape challenged its suspension in December, the main evidence that the Navy presented was that 2008 audit. James F. Merow, a judge on the Court of Federal Claims, said that it did not appear that the Navy’s suspension office had “conducted any meaningful investigation” of other documents “despite having had time to do so.”

Faced with the possibility that the judge might dismiss the suspension, records show, the Navy agreed to lift it in exchange for promises from the company to follow federal rules, refund overcharges, and hire independent monitors and auditors. Inchcape said in a statement that it was delighted that the suspension had been lifted but declined further comment. The Justice Department also declined to comment.

The problems with Inchcape are part of broader contracting issues in the Navy’s global ship-supply network that burst into view in September when the Navy’s main supplier in the Pacific, Leonard Glenn Francis, was arrested on charges of conspiring to bribe Navy officials with cash, trips and prostitutes.

A third ship-supply company used by the Navy, Multinational Logistic Services, placed a senior executive on leave in December over questions about his previous job at Inchcape.

Inchcape has already lost most of its Navy business, with Multinational Logistic Services winning a contract this week to handle ships in the Middle East. Inchcape also works for other federal agencies.

This week, the House Committee on Oversight and Government Reform asked the Navy secretary, Ray Mabus, to provide records of ship-supply contracts since January 2009.

A number of other G4S officers “liked” the post, and Manus staff continued to joke about the incident.

“I want to be his escort to the shitter when he passes them,” posted Jason Drain, another employee at the centre. Lol so he has finally realised the food is shit,” posted Paul Clear, who was also a G4S employee."

Powell replied in a later post that “Docs think it may take up to a month” for the asylum seeker to pass the clippers.

G4S launched an investigation after Guardian Australia raised the posts with the Immigration Department. Drain has since posted on Facebook that he was sacked, but G4S would not confirm the circumstances of the other two employees’ departures.

“G4S has concluded its investigation into allegations of misuse of social media platforms by some personnel based at the Manus Island offshore processing centre,” G4S said in a statement.

“We found that a small number of personnel had directly or indirectly breached our strict policies on duty of care and social media use by commenting on a serious self-harm issue on their personal Facebook accounts. The actions of these individuals are completely unacceptable to G4S and have been dealt with swiftly.

“The individuals who were found to have breached our policies will no longer be employed by G4S.” The statement also said G4S would continue to review its training programs and monitor social media.

The Australian navy has also launched an investigation into inappropriate social media use by its personnel, after Fairfax media reported on links to racist Facebook groups.

Allegedly, KBR made claims to the government, knowing them to be false, under a contract with the Army to provide wartime logistical support, known as the Logistics Civil Augmentation Program (LOGCAP) III. The award of LOGCAP III paved the way for the company to become a critical source for logistical support services in Iraq, which included transportation, maintenance, food, shelter and facilities management. KBR performed many of these services through subcontracts awarded to foreign companies local to the region, such as La Nouvelle and First Kuwaiti.

In its complaint, filed in federal court in Rock Island, Ill., the government alleged that, in 2003 and 2004, KBR employees took kickbacks from La Nouvelle and First Kuwaiti in connection with the award and oversight of subcontracts awarded to these companies. KBR then claimed reimbursement from the government for costs it incurred under the subcontracts that allegedly were inflated, excessive or for goods and services that were grossly deficient or not provided. For example, KBR allegedly awarded La Nouvelle a subcontract to supply fuel tankers for more than three times the tankers’ value. La Nouvelle later rewarded the KBR employee who awarded the subcontract with a $1 million bank draft. As another example, KBR allegedly continued to make monthly lease payments to First Kuwaiti for trucks KBR had already returned to the subcontractor. KBR billed the government for the costs of both of these subcontracts. The lawsuit also alleges that KBR used refrigerated trailers to transport ice for consumption by the troops that had previously been used as temporary morgues without first sanitizing them.

“Our office investigated the actions of KBR and related companies, as well as certain KBR employees,” said U.S. Attorney for the Central District of Illinois Jim Lewis. “We were able to obtain criminal convictions against several subcontract managers whose actions were illegal and caused damage to our military, and we are now committed to pursue these civil claims against the companies themselves.”

The U.S. Attorney’s Office in Rock Island has convicted 10 companies and individuals in connection with wartime contracts in Iraq. The convictions include three KBR subcontract managers who admitted taking kickbacks or making false statements in connection with the allegations made in the government’s complaint. Anthony J. Martin pleaded guilty in 2007 to taking kickbacks in return for awarding First Kuwaiti subcontracts for trucks and trailers and also admitted including the amount of the kickbacks in the price of the subcontracts. In 2005, Jeff Alex Mazon pleaded guilty to making a false written statement in connection with a subcontract for fuel tankers awarded to La Nouvelle in 2003. And in 2006, Stephen Lowell Seamans admitted taking kickbacks from La Nouvelle, during a guilty plea to a kickback arrangement with another subcontractor, Saudi Arabia-based Tamimi Global Co. Ltd. (Tamimi). The government previously entered into criminal and civil agreements with Tamimi in which Tamimi paid the U.S. government $13 million, including $7.4 million for civil claims and $5.6 million in criminal fines, to resolve its liability for the kickbacks.

The government is suing KBR, La Nouvelle and First Kuwaiti under the False Claims Act, as well as the Anti-Kickback Act.

“Contractors and subcontractors are expected to comply with their statutory obligations and act in good faith when dealing with the United States government,” said Special Agent in Charge of the Defense Criminal Investigative Service’s Southwest Field Office Janice M. Flores. “The lawsuit demonstrates the commitment of DCIS and its partner agencies to prevent false billing and corrupt practices involving the military contracting process.”

Some of the allegations contained in the government’s complaint were originally alleged in a lawsuit filed in a federal court in Houston by a whistleblower, Bud Conyers, under the qui tam provisions of the False Claims Act. The case was later transferred to the U.S. District Court for the Central District of Illinois in Rock Island, Ill., where LOGCAP III is administered by the Department of Defense at the Rock Island Arsenal. The False Claims Act authorizes private parties to sue, on behalf of the government, companies and persons whom they believe have falsely claimed federal funds and to share in any recovery. The Act also allows the government to intervene and take over the action, as it has done in this case. The government notified the court earlier this year that it was intervening in Conyers’ case and intended to file its own complaint with additional allegations.

The lawsuit is being handled by the Civil Division of the Department of Justice with investigative support by the Defense Contract Audit Agency, the Defense Criminal Investigative Service and the Army Criminal Investigation Command. The U.S. Attorney’s Office for the Southern District of Texas also participated in the investigation.

The case is captioned United States ex rel. Conyers v. Kellogg Brown & Root Inc. et al., No. 4:12-cv-04095-SLD-JAG (C.D. Ill.). The claims asserted in this case are allegations only; there has been no determination of liability except to the extent of admissions made in the criminal proceedings. USDOJ - http://www.justice.gov/

Given the illegality of the settlements under international law, the OECD is expected to question G4S on how it can justify, as a company from an OECD-member country, supplying or servicing kit that aids the occupation.

If the organization finds G4S has acted improperly, it will create another major raft of bad publicity for the company which has already been pilloried for overcharging British taxpayers for its electronic tagging of prisoners and, perhaps most famously, its bungling of the Olympics security contract and its operation of prisons such as Oakwood, where there was a five-hour period of disorder at the weekend.

Only last month, the British Government warned UK citizens of the risks of doing business with Jewish settlements in the occupied territories. The UK Trade and Investment website was updated to warn the settlements are illegal and that operating there was risky.

The website warned against carrying out financial transactions, investments, purchases or procurements from businesses there, and tourism. It said EU citizens and businesses should “be aware of the potential reputational implications of getting involved in economic and financial activities in settlements, as well as possible rights abuses of individuals”, and added: “Those contemplating any economic or financial involvement in settlements should seek appropriate legal advice.”

That update marked a severe ratcheting up of the British criticism of Israel’s activities in the West Bank and East Jerusalem. In a move that enraged Israel, last July the European Union banned grants to Israeli companies or projects with links to the settlements.

The OECD’s national contact point in the UK declined to comment on the investigation, which is likely to take about three months for its first stage. Its decision to press ahead is seen as a victory for campaigners like Lawyers for Palestinian Human Rights and War on Want. Under rules signed up to by the British Government last year, G4S and other companies will have to include a section on their protection of human rights.

Northrop had agreed in its 2002 settlement with DCMA that it would limit the amount of deferred compensation it would include in proposals for subsequent contracts. The government’s contracting officer found that Northrop had failed to honor this commitment and should be assessed a penalty equal to twice the amount of the unallowable costs claimed. Northrop challenged the decision in a complaint filed in the U.S. Court of Federal Claims in Washington, D.C. The Department of Justice responded to the suit with counterclaims alleging that in addition to the FAR penalties, Northrop also had violated the False Claims Act by passing along these unallowable costs to the government in indirect rates applicable to hundreds of 2004 contracts with the government. The government alleged that as a consequence of Northrop’s knowing misrepresentations, it was induced to pay more than $1.9 million in unallowable costs in thousands of vouchers and invoices.

The settlement was the result of a consolidated effort spearheaded by the Civil Division’s Commercial Litigation Branch in conjunction with the DCMA and the Defense Contract Audit Agency, Western Region Investigative Support Division. The claims settled by this agreement are allegations only, and there has been no determination of liability. The case is captioned Northrop Grumman Corporation v. United States, Fed. Cl. No. 07-482C. www.justice.gov

The Johnsons formed a company in Tennessee, Military Logistics Support (MLS), and listed only the names of relatives as officials in the documents filed. Angela Johnson operated the company. When Keith Johnson’s company solicited quotes for different vehicle parts that were needed, Angela Johnson, using her maiden name of “Angela Gregory” to conceal her relationship to Keith Johnson, responded with quotes based on parts that she was able to purchase from other vendors of vehicle parts. Keith Johnson used his position as program manager to write letters justifying awards of purchase orders for parts to MLS without seeking competitive quotes, and in instances in which there had been competitive quotes, approving recommendations that the awards be made to MLS.

The Johnsons also conspired with John Eisner and Jerry Kieffer, two individuals who worked at the CMF as subcontractors to Keith Johnson’s company, to have Keith Johnson similarly steer purchase orders for other types of vehicle parts to Eisner’s and Kieffer’s separate company, Taurus Holdings. Eisner submitted the quotes for Taurus using a fake name to conceal his connection to the subcontractor. Eisner and Kieffer paid kickbacks to the Johnsons and on occasion engaged in collusive bidding with the Johnsons so that MLS could win competitions for certain purchase orders. Eisner and Kieffer previously pleaded guilty to conspiracy and will be sentenced on Dec. 18, 2013.

As a result of the scheme, Keith Johnson’s company awarded MLS at least $9.7 million worth of purchase orders for vehicle parts by Keith Johnson’s company.

This case was investigated by DCIS, FBI, SIGAR and Army MPFU. Trial Attorney Daniel Butler of the Criminal Division’s Fraud Section and Assistant United States Attorneys Jack Hanly and Ryan Faulconer of the Eastern District of Virginia are prosecuting the case on behalf of the United States. www.justice.gov

The Navy already is investigating a number of senior Navy officers in connection with an alleged overbilling scheme by another maritime services contractor, Glenn Defense Marine Asia, whose chief executive was arrested in September on charges that he bribed Navy officers.

Fat Leonard (in the middle) is in jail in San Diego awaiting trial 

Fraud, Waste and Abuse 

For the past four years, Navy officials strongly suspected they were being ripped off by a major defense contractor that resupplied ships and submarines across Asia. The service launched several reviews and criminal investigations, but none produced hard evidence of wrongdoing.

The chief executive of the contractor, Glenn Defense Marine Asia, seemed to have a uncanny knack for swatting away auditors' concerns. He even managed to persuade the Navy to give him more lucrative contracts, worth up to $200 million.

Now, federal prosecutors say they finally figured out how Leonard Glenn Francis — known in Navy circles as "Fat Leonard" for his imposing girth — was able to dodge scrutiny for so long. They have accused the Malaysian businessman of recruiting several high-placed moles in the Navy. The informants allegedly leaked sensitive information about contracts as well as closely guarded details about law-enforcement probes targeting Glenn Defense Marine, enabling the company to bilk the U.S. government out of more and more money as it fended off the investigations.

The case is shaping up as the biggest corruption scandal to hit the Navy in years. Two Navy commanders have been arrested — the most recent on Wednesday — and charged with feeding inside information to Francis, as has a senior agent with the Naval Criminal Investigative Service.

In addition, a Navy captain who has not been charged but is under investigation was relieved of his ship's command last month. Court papers suggest that still more officers could be implicated.

The case has exposed how the Navy remains vulnerable to kickbacks and bribes from its extensive network of contractors, despite past pledges by the Pentagon to strengthen oversight.

In particular, affidavits filed by investigators demonstrate how easy it was for a foreign contractor to allegedly pry loose secrets from the Navy with age-old temptations: sex and money. All three of the Navy officials charged in the case are accused of selling information to Singapore-based Glenn Defense Marine in exchange for regular visits with prostitutes, travel expenses and other perks.

In October 2009, Francis received an alert from one of his alleged moles, Navy Cmdr. Jose Luis Sanchez, a deputy logistics officer for the Navy's Seventh Fleet. According to charging documents, Sanchez reported that Navy officials were raising concerns about $111,000 in expenses billed by Glenn Defense Marine for a Navy ship's visit to Malaysia. "Will call tonight to discuss," Sanchez said in an email.

In exchange, Francis provided Sanchez and other Navy personnel with female escorts and upscale hotel rooms during visits to Singapore and Malaysia, according to the charging documents.

"Yummy . . . daddy like," Sanchez enthused in a Facebook message after the contractor sent him emails describing the arrangements.

Sanchez was arrested Wednesday and charged with conspiracy to commit bribery. Prosecutors said he regularly provided Glenn Defense Marine with classified reports of ship movements and scheduled port visits, as well as other inside information that gave the firm an edge in bidding for contracts.

Sanchez was granted release on $100,000 bond Thursday and is scheduled to appear in court in San Diego this month, according to his attorney, Vince Ward. Ward declined to comment on the allegations against Sanchez, saying he only recently took up the case.

In 2010, Glenn Defense Marine continued to attract the suspicion of Navy officials. In July 2010, court records show, the Naval Criminal Investigative Service opened a probe into allegations that the contractor had submitted false claims for $110,000 in dockage and wharfage fees from a Navy ship exercise in Thailand.

Investigators say, however, that Francis was able to closely track the progress of that probe thanks to another mole. According to court papers, Francis had recruited a senior agent with the NCIS, John Beliveau II, to provide him with details of the case as it unfolded by sharing material from internal NCIS files.

In addition, Beliveau "specifically counseled" Francis on how to respond to inquiries from other NCIS agents, court papers show.

Francis bragged about his ability to evade scrutiny a year later, even after NCIS opened a second criminal probe into his firm, the records show.

In a 2011 email to a colleague, Francis said the fraud cases were "hard to prove and charge. I have inside Intel from NCIS and read all the reports. I will show you a copy of a Classified Command File on me from NCIS ha ha."

Beliveau was arrested on bribery charges in September and is free on bond. Prosecutors said he surreptitiously downloaded law-enforcement files about the Glenn Defense Marine investigations from NCIS databases and shared the information with Francis over a period of two years, most recently in August.

In exchange, court records allege, Francis plied him with prostitutes, money and travel expenses. One of Beliveau's attorneys, Gretchen von Helms, said he had pleaded not guilty. "He's an extremely honorable man. As the case proceeds through the court that will become clear," she said."

Navy officials were especially sensitive about the potential for contract fraud after an unrelated kickback scandal erupted in 2011 in Rhode Island. Federal authorities there charged a Navy systems engineer and a defense contractor with bilking the Navy out of $10 million.

In April 2011, Navy Secretary Ray Mabus announced the appointment of a special oversight panel to prevent future fraud cases. "We will not accept any impropriety, kickbacks, bribery or fraud," he promised.

Three months later, despite the ongoing investigations targeting Glenn Defense Marine, the Navy awarded Francis' company three new contracts worth a potential $200 million over five years.

The contracts were to resupply, refuel and provide a variety of other services — tugboat guides, food, trash removal and wharf security — to Navy ships during port visits across Asia.

Prosecutors say Francis quickly exploited the deals by billing the Navy for inflated or invented expenses, often with the help of corrupt Navy officers.

In October 2011, for example, Francis emailed Sanchez asking him to help "swing" a deal for Glenn Defense Marine to sell fuel to the USS Mustin during a visit to a port in Thailand, according to charging documents.

"Ask and you shall receive," Sanchez replied in an email. "We worked this out this morning."

The Navy bought the fuel from Glenn Defense Marine for $1 million, the documents show, even though it would have cost less than half that figure on the open market.

Navy officials said they did not have enough evidence to charge Francis or prevent him from procuring contracts until recently.

The investigations "simply weren't mature enough until very recently because he was being tipped off," said a senior Navy official, speaking on the condition of anonymity because the case is ongoing.

Francis was arrested in September in San Diego after investigators lured him to the United States in a sting operation. He remains in custody. His attorney, Edward Swan Jr., did not return a phone call Thursday seeking comment. Officials with Glenn Defense Marine have declined comment.

Prosecutors from the U.S. Attorney's Office in San Diego, which is leading the investigation, said in court papers that they are still assessing the scope of the alleged fraud but said it exceeded $10 million in just a handful of episodes.

The government alleged that, from 2007 to 2008, ICCB paid bribes to Army Corps of Engineers procurement official John Salama Markus, 41, of Nazareth, Pa., to obtain information that gave it an advantage in bidding on several construction contracts with the Department of Defense in Iraq. The contracts supported reconstruction efforts involving the Iraq war, including infrastructure and security projects and the building of medical facilities and schools. ICCB then knowingly overcharged the U.S. for services provided under the contracts, according to the government’s allegation.

“It is offensive that anyone would see projects to promote stability, health and education in a rebuilding country as a way to make illegal cash on the side,” said U.S. Attorney for the District of New Jersey Paul J. Fishman. “We will not abide companies paying to play in such a system.”

“The Defense Criminal Investigative Service (DCIS) is committed to protecting the integrity of the Defense acquisition process from personal and corporate avarice,” said Special Agent in Charge, DCIS Northeast Field Office Craig Rupert. “Ensuring the proper use of U.S. taxpayers’ dollars and preventing contract fraud is in our nation’s interest and remains a priority.”

The settlement is part of a larger investigation initiated by the U.S. Attorney’s Office for the District of New Jersey. As part of that investigation, Markus pleaded guilty on Sept. 7, 2012, to wire fraud, money laundering and failure to report a foreign bank account in connection with more than $50 million in contracts awarded to foreign companies in Gulf Region North, Iraq. Markus was sentenced to 13 years in prison on March 12, 2013, in Newark, N.J., federal court.

The investigation is being handled by the U.S. Attorney’s Office for the District of New Jersey and the Civil Division’s Commercial Litigation Branch, in cooperation with the Defense Criminal Investigative Service, the Major Procurement Fraud Unit of the Army’s Criminal Investigation Command, the Criminal Investigative Division of the Internal Revenue Service and the Department of Homeland Security. The claims resolved by the settlement are allegations only; there has been no determination of liability.

The investigation is due to report by the end of next month. The company has also been given until the end of November to transform its business practices or face being frozen out of further government outsourcing competitions.

Serco is one of Britain’s biggest support services group with total revenues of US $7.5 billion. In the defense sector here, the company is involved in outsourcing everything from the Royal Navy laundry service to aircraft maintenance and supporting early warning at the Fylingdales anti-ballistic missile warning system, along with the intelligence mission for the UK and US at Menwith Hill.

Its US operation employs around 10,000 people and has annual revenues of $1.2 billion.

As things stand, Serco can bid and be selected for defense deals with the MoD, but cannot actually sign a contract ahead of the issues it is facing being resolved.

Despite that, this week Serco secured a one-year extension on a training contract for the armed services due to expire at the end of this year.

A decision on a strategic business partner for the Defense Infrastructure Organization (DIO) is not expected until early next year.

Before that, though, Serco faces a decision by the MoD on whether it will retain its position as the service supplier at the Royal Air Force Fylingdales missile detection and early warning base.

Serco is in competition with Babcock as it tries to hold on to a contract it has held for decades providing 24-hour maintenance, operational, engineering and logistics support to the base, a key part of the UK and US ballistic missile defense screen.

Contract selection is expected by the end of the year.

The DIO, which manages everything from naval bases to troops accommodation and catering is looking for a private sector partner to improve the skills and efficiency of its US $5.2 billion a year operation.

The deal is set to run for 10 years and could be worth up to $400 million to the winning bidder.

Consortiums led by Serco, Telereal Trillium and Capita originally submitted proposals in June and the new submissions delivered this week are a further refining of the bid.

A spokesman for the DIO confirmed the revised bids have been submitted by the contenders

“DIO recently carried out a short exercise to revise and confirm aspects of the tenders. DIO must receive responses from the three consortia competing to become its strategic business partner by late October. Its business partnering team will now carry out further evaluation of the bids, backed by the continuing support of a wide group of subject matter experts from across the organization and wider government,” he said.

Serco leads a consortium that includes US contractor Bechtel.

Bechtel is also the lead on a consortium vying with a CHM2 Hill / Serco / Atkins team to secure a controversial deal to hand management of the MoD’s procurement and support operation to the private sector in a government-owned contractor-operated (GOCO) system.

A competition between the two US-led consortiums to secure the deal is underway, even though the government has yet to finally make up its mind whether it will proceed with the GOCO or opt for another plan based on a more effective version of the Defense Equipment & Support organization known as DE&S Plus.

A decision on how to proceed with reforming the $14 billion a year procurement and support effort is expected early next year.

The Financial Times on Oct. 17 said the GOCO scheme was starting to unravel because the CHM2 Hill team may have to withdraw due to Serco being embroiled in the controversy with the UK government.

Serco confirmed it had submitted a bid for the DIO competition but declined to comment on the media speculation over the GOCO.

Having a single bidder for such a controversial scheme would be untenable, said industry executives here.

A URS and KBR team has already pulled out of the competition.

“Defendants McGrade and Collinsworth- now convicted felons-defrauded and stole from the American people, plain and simple,” said U.S. Attorney Neil H. MacBride. “We, along with our law enforcement partners, are committed to ferreting out and prosecuting those that destroy the integrity of the government contracting process.”

“I commend our investigators on their excellent work in this case, and diligence in protecting taxpayer dollars,” said Harold W. Geisel, Acting Inspector General, U.S. Department of State and Broadcasting Board of Governors.

“The scope and breadth of this fraud is reprehensible, not just because of the dollars involved, but because of the position of trust that Ms. McGrady held,” said Special Agent In Charge Kelly. “Her actions denied small businesses the opportunity to compete for these government contracts and that is unacceptable. Today’s pleas put corrupt business owners like Ms. McGrade and Mr. Collinsworth on notice, that the government will get to the truth no matter how they try to disguise their business transactions. IRS-CI will continue to work with the United States Attorney and our other law enforcement partners to root out these corrupt business owners.”

McGrade and Collinsworth were indicted on April 25, 2013, by a federal grand jury on charges of conspiracy, major fraud against the government, wire fraud, false statements, and engaging in unlawful monetary transactions. Each defendant faces a maximum penalty of 30 years imprisonment when they are sentenced on November 8, 2013.

In a statement of facts filed with the plea agreement, the defendants admitted that McGrade was a contract employee for the Department of State and performed the role of a contract specialist for an office that awarded construction contracts for work done at U.S. embassies worldwide. Collinsworth worked at one of the companies that received contracts. In 2006, the defendants married, but did not tell others at the Department of State. The defendants started a company, the Sterling Royale Group, or SRG, with McGrade serving as the president and Collinsworth the vice-president and project manager.

In late 2007, McGrade caused a State Department contracting officer to sign a contract between the Department of State and SRG, and McGrade failed to disclose her role in SRG, her marriage, or that proper contracting competitive procedures had not been followed. The contract made SRG eligible to receive task orders for work to be done at embassies and McGrade began steering work to the company.

She acted as the contract negotiator between the Department of State engineers responsible for getting the jobs done, on the one hand, and Collinsworth, who was acting on behalf of SRG and the subcontractors, on the other. Between 2008 and 2011, McGrade caused Department of State contracting officers to sign 17 task orders awarding work worth almost $53 million. In 2010, the defendants also lied about their marriage to investigators conducting McGrade’s background investigation regarding renewal of her security clearance.

In the summer of 2011, a news article disclosed the defendants’ marriage and the Department of State terminated her employment. The Department of State, however, had paid SRG about $39 million, and after the defendants had paid their subcontractors, they still had millions of dollars. Among other things, they bought houses, a condominium, a yacht, a Lexus automobile, jewelry, and a Steinway piano with the fraudulently obtained money. The defendants have agreed to forfeit all of those items.

This case was investigated by the Department of State, Office of Inspector General, and the Global Illicit Financial Team, a task force led by the Criminal Investigation Section of the Internal Revenue Service. Assistant United States Attorneys Jack Hanly and Mark Lytle are prosecuting the case on behalf of the United States.

Sopko found that USAID also did not provide contractors with a clear understanding of their obligations or enforce the terms of their agreements. He recommended that the mission director modify contracts for the program to better articulate the plans behind those agreements.

The agency largely concurred with that suggestion in its response to the findings.

Sopko also determined that USAID has veered from the so-called Kandahar Model, which lays out the standards for SIKA contracting. He recommended that the agency follow those guidelines more strictly.

Wines disagreed with Sopko’s interpretation of the model, saying the agency needs flexibility to adjust for local conditions. “A bottom-up, community-based approach combined with flexibility at the local level is the essence of the Kandahar Model, and mandating a strict adherence to any one particular approach would be contradictory to the model and inhibit progress in developing grants,” she said.

Sopko also said USAID should require documented proof that Afghan officials concur with SIKA initiatives. Wines said the agency already requires such agreements, but the inspector general noted that those understandings are not always formalized in writing. As reported by Washington Post

This is the first time the U.S. government has attempted to freeze and then seize funds held by an Afghan contractor in an Afghanistan bank, and was the direct result of SIGAR’s investigation. The funds were in Hikmatullah’s accounts in Afghanistan International Bank (AIB), but have since been transferred to other banks outside Afghanistan.

Key Facts from the Case 

SIGAR Investigation Uncovered Scheme to Allegedly Defraud the U.S.:

• Beginning as early as November 2010, and continuing until at least March 2012, Hikmatullah allegedly conspired to obtain illegal payments for transportation of U.S. military supplies.
• Hikmatullah allegedly obtained contracts, through fraudulent means, covering at least 5,421 transportation missions, valued at $77,920,605, to resupply the United States.
• Hikmatullah allegedly paid bribes and kickbacks, and manipulated contract bids, in order to obtain these contracts.

Timeline of Events:

• On November 7, 2012 a U.S. judge issued seizure warrants for more than $77 million held in bank accounts at AIB. These seizure warrants were sent to Afghanistan pursuant to the United Nationals Convention Against Corruption, as a mutual legal assistance request.
• In addition to the seizure warrants, arrest warrants in rem were filed in November, 2012, and received by Afghanistan on December 31, 2012, with a request to freeze the accounts.
• In response to the U.S. request, on or about January 28, 2013, AIB froze two defendant bank accounts at the direction of the Afghan Attorney General’s Office.
• On March 25, 2013, Hikmatullah transferred money out of the AIB accounts to accounts at Bank Alfalah and Emirates NBD Bank in the United Arab Emirates.
• On or about April 4, 2013, the United States learned that the freeze on the AIB accounts had been lifted. Subsequently, the Acting Attorney General of Afghanistan informed the United States that Afghanistan would not comply with the U.S. mutual legal assistance request.
• On May 3, 2013 the United States filed an amended verified complaint for forfeiture of the assets transferred out of AIB bank, and on May 8, 2013, the U.S. District Court, District of Columbia, issued arrest warrants in rem against those funds in the interbank accounts.
• In May, 2013, SIGAR investigators served the arrest warrants on eight banks in New York having interbank accounts with foreign banks to which Hikmatullah had transferred funds.
• To date, SIGAR has moved $10.1 million from the Hikmatullah accounts.
• SIGAR and the Justice Department continue to pursue the rest of the money.

Court Documents: U.S. District Court of the District of Columbia, Case No. 12-cv-01905 (RWR)