Military Probes Iraq Contracts
By ROBERT H. REID, Associated Press Writer
November 23, 2007

KUWAIT CITY - The flashy Laila Tower office building in this wealthy oil capital is a world away from the mean streets of Baghdad. But the U.S. government says they are linked by a web of fraud and bribery that stole millions of dollars provided by American taxpayers to support U.S. combat troops in Iraq.

The U.S. military and prosecutors have launched 83 criminal investigations into alleged contract fraud, including a total of $15 million in bribes.

It was the apparent suicide of an Army major in Baghdad a year ago that brought them to the 15th floor of the Laila Tower. There, overlooking the Persian Gulf, is the firm run by American George H. Lee and his family, a small part of that huge web.

None of the Lees has been charged with any crime. But the Army suspended them from doing business with the U.S. government, and a federal judge in Huntsville, Ala., upheld the order in August, as a military investigation into their case continues.

The case of Lee, a 64-year-old former Army supply clerk from Pennsylvania, provides rare insight into how fraud was able to occur, in part by exploiting the chaos in Iraq and Afghanistan.

It also shows the flaws in the U.S. system of bids between private contractors and the U.S. military officers who doled out billions of dollars in contracts since 2003, often with little oversight.

Kuwait's close-knit expatriate community also played a role, in a place where business is traditionally done away from the glare of public scrutiny.

"Bribery and kickbacks are common with big projects," said Ali al-Nemash of the Kuwait Transparency Society, a private organization that seeks to combat graft and corruption. "They call it 'gifts,' but it is bribery."

Teams of U.S. investigators are reviewing a sample of about 6,000 U.S. military contracts worth $2.8 billion that were awarded by a single Army office at Camp Arifjan, a huge logistics and supply base about 40 miles south of the Laila Tower.

The U.S. has publicly identified only some of the companies and individuals linked to the alleged bribery and fraud. The Army cited the need to protect "the integrity of the ongoing investigation" in refusing a request by The Associated Press for an interview at Camp Arifjan.

The biggest bribery case brought so far involves Maj. John Cockerham, a former Army contracting officer, his wife and sister. They have been charged in U.S. federal court with receiving $9.6 million in bribes from companies seeking contracts to provide bottled water and other supplies.

The apparent suicide last year in Baghdad of Army Maj. Gloria D. Davis set in motion a chain of events that has shed light on the Lee case and others in the web.

Before her death on Dec. 12, Davis told Army investigators she had received $225,000 in bribes from Lee in return for granting his company $14 million in contracts to provide warehouses and management services in Iraq.

She took the bribes while a contracting officer at Camp Arifjan in 2003 and 2004, according to a July memorandum by the Army's Legal Services Agency.

Davis also told investigators that Lee and his son, Justin W. Lee, paid other American officers in return for getting U.S. contracts, according to the memo. A copy of the memo was obtained by AP.

The memo included allegations that another, unidentified former Army contracting official said he received $50,000 for helping Lee win contracts worth $11 million. The officer was identified in the memo as a "cooperating witness in the investigation."

The government disclosed its findings against the Lees in court papers seeking to uphold the banning order, including a statement by the Army investigator who interviewed Davis.

Lee, who served as an Army supply clerk from Jan. 20, 1965, until Dec. 23, 1966, did not respond to telephone calls and an e-mail from AP seeking comment. An AP reporter who visited his offices on the 15th floor of the Laila Tower in Kuwait City's glittering Salmiya commercial district was told by an executive that Lee was unavailable. The reporter left a business card with a local telephone number but no one from the company responded.

AP uncovered no previous history of wrongdoing by the Lee family.

According to the court papers, Davis said she received the $225,000 through bank accounts established in Thailand by Lee's Thai wife, Oai, and then deposited the money in American and Swiss banks.

At the time, Lee was president of American Logistics Services, another Kuwait-based company. In 2005, he set up his current company, Lee Dynamics, and won a $12 million warehousing contract.

Davis, then working at the Pentagon, told him he would receive a "glowing report" during the bidding process, court documents allege.

"Maj. Davis also alleged that payments were provided to other contracting officers by both George H. Lee and Justin W. Lee in an effort to have contracts awarded" to their companies, the Army said in the July memorandum.

In a seven-page declaration, Army investigator Larry Moreland said a former officer identified only as "Person B" visited Lee's office in Kuwait in March 2004 and provided him with inside information on an upcoming warehouse contract.

Lee's company was awarded the contract in May 2004, Moreland said. One month later, the contract was increased by $3.5 million. Moreland quoted an unidentified former associate of Lee's as saying Lee knew more money was available "based on information from Person B," who has agreed to cooperate with the government.

One of the most striking aspects of the fraud investigations has been the number of those caught up in it who have apparently killed themselves -- at least three Army officers so far.

Until her death, Davis, a native of Portageville, Mo., appeared to have been a model Army officer.

Her daughter, Candace, told the St. Louis Post-Dispatch that Davis had mentored fellow black military officers, worked in women's shelters in the Washington, D.C., area, and encouraged disadvantaged black children to attend school.

Davis' children are seeking to reverse a government order seizing their mother's bank accounts, which were frozen one day before she was found dead of a gunshot wound in Baghdad.

She and others may have fallen into what Rep. Ike Skelton, chairman of the House Armed Services Committee, referred to as a "culture of corruption" at Camp Arifjan, where about a dozen people gave out contracts worth tens of millions of dollars.

Poor record-keeping, overwork and inadequate supervision contributed to the problem, as a relative handful of personnel scurried to support complex operations -- set up quickly in the run-up to the 2003 U.S.-led invasion of Iraq -- which have lasted far longer than foreseen.

A handful of soldiers and civilians and military officers working out of a small office in the bleak Kuwaiti desert found themselves doling out contracts totaling hundreds of millions of dollars, often with little contracting experience.

Several former civilian contractors who worked in Iraq spoke of a climate where costs didn't seem to matter, where equipment disappeared without accountability and where inept managers were simply shifted from job to job rather than fired.

"I think some people just saw all that money coming through and decided to take a piece of it for themselves," one of them said.

All spoke on condition of anonymity because they still work for firms doing business with the U.S. government.

Kuwaiti law requires companies operating here to have a Kuwaiti partner. But the government has shown little interest for looking into the activities of firms doing business with the Americans, considering it an internal U.S. matter and possibly to avoid embarrassing well-connected Kuwaiti businessmen.

Kuwait is a tiny country that thrives on commerce and trade, with a long tradition of wheeling and dealing by powerful trading clans that grew rich even before oil was discovered here. Although the country has public disclosure regulations, many business deals are still considered a private matter.

Defense Secretary Robert Gates said this month that the Pentagon will act on recommendations that the Army needs 2,000 more military and civilian workers to better manage contracts -- to ensure the years of waste, fraud and abuse don't happen again.

A Nov. 1 report by an independent Army panel said the Army "lacks the leadership and personnel (military and civilian) to provide sufficient contracting support." The report said the Army has seen a 600 percent increase in its contract workload, yet staffing has declined or remained stagnant since 1990.

Such shortcomings, the report said, "have significantly contributed to the waste, fraud and abuse."

Associated Press researcher Barbara Sambriski in New York contributed to this report.

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