AUGUST 21, 2006
A federal judge’s decision to overturn a jury verdict against a military contractor that defrauded the U.S. Government out of millions of dollars is enraging, especially since the judge acknowledged ample evidence that the contractor submitted false and fraudulently inflated invoices.
The Fairfax Virginia-based military contractor, Custer Battles, had been ordered by a jury to pay $10 million for defrauding the U.S. Government during the course of a multi million-dollar Iraq contract, marking the first civil-fraud verdict arising from the war.
Using federal whistleblower laws, a former Custer Battles employee provided evidence that the company used false invoices to vastly overstate its expenses and the company was found guilty of violating the False Claim Act, the single most important tool U.S. taxpayers have to recover the billions of dollars stolen through fraud by government contractors each year.
But U.S. District Judge T.S. Ellis overturned the verdict, claiming in a 23-page decision that the government entity–Coalition Provisional Authority–that contracted Custer Battles does not qualify as the U.S. Government and therefore the False Claim Act does not apply.
The now defunct Coalition Provisional Authority (CPA) was formed by the U.S. Government after the 2003 invasion to run Iraq until a government was established. Although it was controlled and funded by the U.S., the judge said it did not qualify as an “instrumentality” of the U.S. Government.
Evidently, a lawsuit under the False Claims Act requires proof that the defendant presented false claims against the U.S. Treasury. In this case, U.S. Government officials as well as military officials controlled and distributed CPA funds and therefore fraud against the CPA is tantamount to fraud against the U.S. Government.
This case is one of many to emerge from the $21 billion Iraq reconstruction effort as complaints of fraud and corruption continue to emerge. The office of the special inspector general for Iraq Reconstruction has referred more than 20 criminal cases to the Department of Justice for prosecution.
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