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Pentagon Needs to Stop Doing Business with Foreign Fraudsters

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Its final results won’t be known until later this year, but the first-ever agency-wide audit of the Department of Defense already has raised some eyebrows, reported Townhall (US).

It previously had revealed through reports from the Office of the Inspector General that the Army had posted $6.5 trillion in accounting discrepancies in 2015, and from the Defense Logistics Agency – the procurement arm of the U.S. military – that it can’t account for $800 million in spending on construction projects.

Recently, we’ve found the Air Force seems to have awarded a multi-million dollar contract to a South Korean aviation firm with a lengthy history of fraud.

Nine executives at Korea Aerospace Industries, including former CEO Ha Sung-yong, were indicted last year on charges of bribery, embezzlement and defrauding the South Korean government. Prosecutors charged the then-CEO created a slush fund through a subcontractor and used it to bribe politicians and military leaders.

The firm also stands accused of falsifying documents to manipulate exchange rates on overseas purchases. In total KAI reportedly had falsified more than $40 million in profits and overstated sales by nearly a half-billion dollars.

Prosecutors did not confirm where the crimes were committed. But roughly 70 percent of the parts KAI purchases abroad come from the United States, and the head of KAI’s U.S. division was among the executives sentenced to prison.

Yet, two weeks after the executives were indicted, the Department of Defense gave KAI a 5-year contract worth $48 million to maintain fighter jets.

This is far from the first time the Department of Defense has done business with vendors who had been accused of fraudulent practices.

Another defense contractor, Kuwait-based Agility Logistics, held a contract worth $8.6 billion for supplying food to the U.S. military during the Iraq War.

In 2005 a former business partner and cousin of the company’s founder Tarek Sultan told authorities of Agility’s theft of millions of dollars from the U.S. government. The Department of Justice found Agility had presented false claims for payment, inflated prices and overcharged the U.S. for warehousing and distribution. Agility also used costlier vendors that would provide them a prompt payment discount, and then failed to pass along rebates as required by contract.

Agility had been indicted for fraud against the United States and supposedly was forbidden to bid on new Defense Department contracts, yet it received a $40 million contract from the Defense Logistics Agency in 2015, and, in 2017, the government agreed to settle the matter for cash and a single misdemeanor charge.

Agility was represented by Stephen Ryan, a D.C. lobbyist with connections in the highest levels of government.

Agility does business with the U.S. government to this day, and its latest contract is up for renewal in August. What will the auditors say and the Department of Defense do about these problematic contracts?

If done properly, the Pentagon’s audit could be a good first step towards identifying waste and bloat. But it’s unlikely to reveal the kinds of bad actors and backroom deals that lead to outright theft of public money.

Over the longer term, the Department of Defense should submit to a comprehensive, independent review of all contracts and contractors to identify fraudsters. In the immediate term, companies such as Agility and KAI should be sidelined from their current projects and prohibited to bid on new ones.

If leadership at the Pentagon and the White House refuse to take action, Congress must force their hands. This is the kind of swamp-draining Americans voted for in 2016. Even in our current fractured political moment, voters on both sides agree sweetheart deals with crooked contractors have to go.

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