Significant Activities
Overseas Contingency Operations
To assist Overseas Contingency Operations, OIG Investigations became an active
participant on three Department of Justice (DOJ) task forces, the National Procurement
Fraud Task Force (NPFTF), the International Contract and Corruption Fraud Task Force
(ICCTF), and the DOJ National Security Division (NSD), Non-governmental Task Force.
The mission of the three task forces is to 1) promote the early detection, prevention,
and prosecution of procurement and grant fraud; 2) conduct proactive activities of
organizations receiving USAID funds for indications of fraud related to possible
terrorist financing; and 3) stop the flow of funds to organizations that support
terrorist activities.
Investigations Intro
Protecting foreign assistance programs and operations from fraud, waste, and abuse
is a priority for Investigations. Thus, our focus is prioritize high-impact
investigations involving program and employee integrity investigations, issues of
Congressional interest, and matters involving threats to national security.
Investigation Leads To $1 Million Recovery from USAID Contractor
Pursuant to an OIG investigation, a U.S. based contractor was issued a Bill for
Collection in the amount of $1,046,253.00 for failing to obtain a Contracting Officer's
approval prior to leasing non-U.S. made vehicles on a long-term basis as required by the
terms and conditions of the contract. In addition, the contractor entered into non-competitive
long-term contracts on an exclusive basis to lease the vehicles. The lack of an approved
source origin waiver, a cursory review of the local market, and the failure to compete a
large procurement; is a violation of the guiding principles of the Federal Acquisition
Regulations (FAR) manual, which seeks to promote competition to the maximum extent possible.
Investigation Leads To Arrest Of Relief Official
On December 14, 2007, a U.S. Magistrate Judge signed a criminal complaint and issued
an arrest warrant for the former Financial Director of a USAID-funded, nonprofit foundation
that provides support, training and housing for South American citizens who are displaced
by violence. Pursuant to the criminal complaint, Special Agents from the USAID, Office of
Inspector General arrested the former Financial Director for violating Title 18, United
States Code, § 666,Theft of U.S. Program Funds.
According to the criminal complaint, the relief official embezzled more than $214,800 U.S.
dollars by purchasing and paying for a condominium, personal loans, school tuition, and furniture.
The embezzlement scheme went undetected, because the Financial Director falsified information
within the company's financial statements.
USAID Contractor Pays $15 million Settlement to the U.S. Government for Sale of Defective
Bullet-Proof Vests
On October 29, 2007, a USAID contractor agreed to pay a $15 million settlement to the United
States for its role in the manufacture and sale of defective Zylon bullet-proof vests and body
armor to federal, state, local and tribal law enforcement agencies.
The manufacturer purchased and used defective, sub grade ballistic fabric for the construction
of bullet-proof vests. From 1996 to 2005, it wove "Red Thread" Zylon fabric into body armor and
vests although the fabric degrades faster when exposed to heat, light, and humidity. The United
States asserts that the company either knew of, or recklessly failed to determine, the defective
nature of the "Red Thread" Zylon. The manufacturer disputes these claims and entered into
settlement to mitigate litigation expenses, delays, and inconveniences.
In compromise, the manufacturer has also agreed to cooperate in the government's on-going
investigation of other parties manufacturing and/or distributing "Red Thread" products.
Contractor Ordered to Pay $7.48 Million in Bills for Collection
Pursuant to an OIG investigation, a contractor responsible for the administration of USAID
construction projects in a high-risk country was ordered to pay in excess of $7 million in
Bills for Collection. The investigation disclosed that under a USAID cooperative agreement,
the contractor was responsible for building small scale infrastructure projects. Under the
terms of the cooperative agreement, the contractor received funding under a Letter of Credit;
however, the contractor and a subcontractor working under the contractor, failed to provide
explanations for the funding draw downs from the Letter of Credit. The investigation further
cited poor performance on construction projects, failure to provide cost justification,
inadequate financial controls, and false reporting on projects.
USAID Contractor and Subcontractors Indicted for Contract Fraud
A USAID contracting company and four subcontractors have been charged with conspiracy,
major fraud, and wire fraud in connection with the war and rebuilding efforts in Afghanistan.
Three individuals were arrested and charged in U.S. District Court in Washington, D.C. The
indictment alleges that the subcontractors defrauded the United States by obtaining reimbursement
for inflated expenses purportedly incurred for rental vehicles, fuel, and security personnel.
These false invoices inflated the amounts the contractor actually paid for rental vehicles and
fuel.
Investigations Leads to First US Extradition from Estonia
In November 2007, an Estonian citizen was indicted in the Middle District of North Carolina (MDNC)
on charges of wire fraud, money laundering and bribery pursuant to an OIG investigation. The
individual worked on a $239 million USAID governance contract in Iraq from May 2003 through October
2003 during which time he, among other offenses, unlawfully directed two subcontract agreements to a
Dubai firm. Over $7 million was then paid to this firm. The Dubai firm then provided the contractor
with hundreds of thousands of dollars in goods and services, including significant improvements to his
North Carolina home and funds for the purchase and furnishing of two condominiums in Miami. Subsequent
to indictment, the OIG worked in concert with the US Departments of Justice and State, Interpol and
Estonian officials to find, secure and return the individual to the US. In September 2008, Interpol
arrested the subject in Estonia. For the next eleven months, American officials sought to effect his
extradition under an untested 1923 treaty between the US and Estonia while the subject filed motions
from jail to prevent it. Finally, in August 2009, the subject was transported by US Marshals to the
MDNC where legal proceedings will continue.
OIG Investigation Leads to Claim Against a Vendor for $9.5 Million
An OIG investigation was initiated based on allegations that a vendor, who was providing technical
assistance to USAID, overbilled the agency by falsely certifying it has completed unfinished work.
In collaboration with the OIG's Office of Audit, an analysis was performed that led to a claim for
disallowed contract costs.
OIG Investigation Leads to Approximately $32,600 Recovery
An OIG investigation was initiated based upon allegations that a locally employed staff (LES)
procurement agent in Zimbabwe submitted false invoices to the Mission for local procurements.
The OIG investigation verified that the LES employee used his position to make false claims and
profit from the abuse of USAID funds. It was determined that the separation pay due to the LES employee
was approximately $32,600. In collaboration with the Embassy Regional Security Officer, it was documented
that at least this amount was stolen; therefore, no severance or other payout was made to the LES employee
upon his termination.
Investigation Leads to Arrest and Contract Termination
An OIG investigation was initiated based upon allegations that USAID was billed for community stabilization
projects that were never implemented and/or completed.
Based upon interviews conducted by OIG and documents obtained during the course of the investigation, a
foreign magistrate judge issued arrest warrants for 12 local nationals suspected of falsifying documents for
the alleged fictitious community stabilization projects billed to USAID. The arrest warrants were obtained
through coordination between the OIG, a U.S. major crimes task force, and local law enforcement.
Of the 12 arrest warrants issued, one arrest was made of a dual U.S. citizen. The other arrests are yet to
be made. The total amount defrauded USAID is yet to be determined. As a result of the investigation, the
Community Stabilization contract was terminated.
Investigation Leads to $446,117.00 Bill of Collection
Local Peruvian land owners in conjunction with the contractor's employees unlawfully obtained USAID funds by
falsifying information regarding the eradication of coca plants and the true ownership of parcels and families
participating in USAID's Alternative Development Program in Lima, Peru.
The investigation revealed that the contractor made payments to individuals under fictitious names, made
double payments, made payments to ineligible minors, and made payments to people not on the original community
lists and not eligible for benefits. Moreover, the investigation revealed that it was the contractors' employees'
unwritten policy to inflate the original community lists, addendums and the invoices in order to meet the
targets/goals placed on them by management.
As a result of the investigation, the contractor's Chief of Party and the Deputy Director resigned and the
contractor entered into a settlement agreement with USAID that required them to pay over $440,000 in an effort
to resolve all issues identified by this investigation.
USAID Contract Subject to Debarment and Multiple Systemic Changes for Unlicensed Program Services and
Prostitution
An OIG investigation of a 14 year, multi-contract, $250 million program in SE Asia uncovered gross misconduct.
Over 100 construction subcontracts were found to have been sold by winning subcontractors to unlicensed contractors,
with the knowledge of employees at the American company that presided over the program since 1995. A USAID employee,
tasked with engineering oversight of many of these projects, admitted to the OIG that over a period of four years he
accepted gifts of prostitution from employees at the prime contractor - including one employee who was later promoted
to the second highest level of program command. It was also discovered that the firms' internal system for conducting
fraud investigations was flawed and served to keep problem employees in place while discouraging complainants from
coming forward. The investigation resulted in numerous systemic changes within the program. A referral sent to USAID
for consideration of debarment from federal programs of culpable local contracting firms and employees of the US
contractor is pending.
OIG Investigation Leads to $5000.00 Recovery, Termination and Local Arrest of a Foreign Service National
The OIG initiated an investigation based on allegations that a Foreign Service National (FSN) solicited kickbacks
from a USAID vendor in Malawi. The investigation confirmed the solicitation and receipt of the $5000.00 kickback
payment by the FSN. Local law enforcement arrested the employee and USAID terminated employment services. A USG
claim has been made on the funds to be returned to USAID at the conclusion of the local prosecutorial process.
Former USAID Contracting Officer Indicted for Making False Claims
An OIG investigation was initiated based upon allegations that a Regional Contracting Officer (RCO) in the
Philippines fraudulently collected Separate Maintenance Allowance (SMA) after being legally separated from his spouse.
The OIG investigation verified that the RCO signed various divorce-related documents which established his legal
separation from his spouse while continuing to claim and receive over $14,000 in SMA payments from USAID.
The RCO pleaded guilty to making False Claims in violation of 18 U.S.C. § 287. A one-count criminal Information
was filed at the U.S. District Court for the District of Columbia charging the RCO with making False Claims in
violation of 18 U.S.C. § 287. The offense carries a maximum sentence of five years of imprisonment, a fine of $250,000,
and a three-year term of supervised release and an order of restitution.
USAID Subcontractors Arrested and Suspended Indefinitely from Business with U.S. Government
Pursuant to indictments previously reported, four USAID subcontractor principals were suspended from doing business
with the U.S. Government. They had been charged with conspiracy, major fraud, and wire fraud in connection with
rebuilding efforts in Afghanistan. The subcontractors defrauded USAID by obtaining reimbursement for inflated expenses
purportedly incurred for rental vehicles, fuel, and security personnel. These false invoices inflated the amounts the
contractor actually paid for rental vehicles and fuel.
The USAID contractor, its owners, and two former employees had been indicted for conspiring to defraud USAID of
approximately $3 million during the performance of the contract. Subsequent to the indictment, the owners and a former
employee were arrested. The remaining former employee, a local citizen, is serving a 2-year sentence for his involvement
with the fraud. In addition, USAID suspended indefinitely all four employees and the corporation from doing business
with the Government.
Former Employee of USAID Grantee Convicted of Embezzlement
An OIG investigation led to the conviction of a former chief of staff for a USAID grantee that receives USAID funds
to promote democracy in Cuba. The former employee pleaded guilty in U.S. District Court to one count of theft from a
program receiving Federal funds. The subject had engaged in a 2-year scheme to defraud the grantee of USAID funds by
overcharging for equipment purchases, resulting in a net profit of nearly $580,000. The subject paid $646,731 in
restitution plus interest to the grantee, which forwarded the money to USAID.
USAID Contractor Indicted for Bank Fraud
An OIG investigation revealed that an employee of a USAID contractor in Egypt committed bank fraud by deliberately
falsifying shipping documents to inflate the costs of USAID-funded transactions, valued at over $1 million. The
contractor was an export supplier participating in the USAID Commodity Import Program in Cairo, which promotes private
sector investment in Egypt. An Egyptian importer was buying polypropylene, which the enterprise used to produce sturdy
fabric bags for transporting and storing products such as crushed stone, sand, cement, chemicals, or animal feed. The
contractor employee delayed shipments and backdated shipping documents to take advantage of falling polypropylene prices
without renegotiating the agreed-upon prices or passing the savings on to the importer. The scheme increased the supplier's
profit margin and the amount of the sales representative's commissions. The contractor later pleaded guilty to felony false
use of shipping documents.
Contractor Ordered to Pay $7.48 Million in Bills for Collection
Pursuant to an OIG investigation, a contractor responsible for the administration of USAID construction projects in Afghanistan
was ordered to pay in excess of $7 million in Bills for Collection. The investigation disclosed that under a USAID cooperative
agreement, the contractor was responsible for building small scale infrastructure projects. Under the terms of the cooperative
agreement, the contractor received funding under a Letter of Credit; however, the contractor and a subcontractor working under
the contractor, failed to provide explanations for the funding drawdowns from the Letter of Credit. The investigation further
cited poor performance on construction projects, failure to provide cost justification, inadequate financial controls, and
false reporting on projects.
Former Relief Official Sentenced to 30 - Day Jail Term
During the previous reporting period, a former financial director of a USAID-funded nonprofit foundation in Colombia was
arrested for theft of program funds as a result of an OIG investigation. On August 5, 2008, a U.S. District Court judge
sentenced the former financial director to 30 days imprisonment to be served on consecutive weekends and three years probation.
In addition, the former financial director was ordered to pay restitution in the amount of $193,336 and a $100.00 assessment
fee.
USAID Grantee Issued $1 Million Bill for Collection
The OIG received an allegation that a USAID funded grantee organization in Iraq was making unallowable purchases, amounting
to approximately $37,000, with USAID funds. The investigation determined that the organization made an additional $1.2 million
in unauthorized purchases. Administrative remedies were sought during the course of the investigation. The organization was
officially notified by USAID and told that retroactive approval for the procurements would not be granted and that a bill of
collection, totaling $1.2 million, would be issued in the form of a demand letter.
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