International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Sunday, March 10, 2019

U.S. Obtains Over $25 Million in Forfeited Funds as Part of a Successful Effort to Root Out Fraud and Corruption in Government Contracting in Afghanistan

The Department of Justice has reached a settlement of its civil forfeiture case against assets owned by Hikmatullah Shadman that he wrongfully acquired as a government contractor in Afghanistan.  Under the terms of the settlement, approximately $25 million will be forfeited to the United States.  The civil settlement is part of a global settlement that involved the resolution of a criminal case and False Claims Act allegations. 

            Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, Assistant Attorney General Jody Hunt of the Department’s Civil Division, U.S. Attorney Robert J. Higdon Jr. for the Eastern District of North Carolina, Inspector General John F. Sopko of the Special Inspector General for Afghanistan Reconstruction (SIGAR), Director Frank Robey of the U.S. Army Criminal Investigation Command (CID)’s Major Procurement Fraud Unit, Special Agent in Charge Robert E. Craig  Jr. of the Defense Criminal Investigative Service (DCIS) Mid-Atlantic Field Office and Special Agent in Charge John Strong of the FBI North Carolina Field Office made the announcement after the settlement was signed and filed with the U.S. District Court for the District of Columbia. 

            “The United States relies on government contractors to supply and resupply our military with vital resources they require to carry out critical missions,” said Assistant Attorney General Hunt.  “We will continue to ensure that companies and individuals who contract directly or indirectly with the federal government do not engage in fraudulent business practices at the expense of our nation’s military and the American taxpayer.”

            “The success of our overseas war and reconstruction efforts is tied directly to the trust and respect established with the local populace,” said U.S. Attorney Higdon.  “Corruption in our military operations undermines those efforts and cannot be tolerated.”

            “This case involved fraud and corruption that exploited subcontracts designed to support American troops in a conflict zone,” said Special Inspector General John F. Sopko. “I’m proud of the tenacity displayed by SIGAR special agents, whose dogged pursuit of justice led to the return of $25 million to the United States Treasury.”

           According to court documents, Hikmatullah Shadman, a young Afghan national, operated several companies including Hikmat Shadman Logistics Services Company (HSLSC), which served as subcontractors delivering supplies to U.S. service members at various locations in Afghanistan.  From November 2010 to March 2012, Shadman charged the United States more than $77 million for delivering supplies to U.S. service members.  The civil forfeiture case, initially filed on Nov. 20, 2012, targeted, among other things, Shadman’s fraudulent receipt of a disproportionate number of subcontracts for the transport of military supplies in Afghanistan, as well as the inflated prices that he charged the United States for such transport.

            From at least 2007 to 2012, the U.S. Government paid contractors and subcontractors to resupply U.S. military forces operating in Afghanistan, and utilized local Afghan-owned businesses to transport fuel and other supplies by truck to various locations throughout the country.  The investigation revealed thousands of apparent falsified documents submitted by Shadman’s companies to the United States for payment.  As a result of this falsification, the Government often paid Shadman for work that was never performed and for work other than that described in the documentation submitted.  Through his companies, Shadman also charged the United States rates which were well above the average rate of his competitors.  The forensic analysis conducted in this case revealed that Shadman overcharged the United States millions of dollars for transporting supplies to U.S. service members in Afghanistan. 

            As part of the global settlement, several companies owned and controlled by Shadman, including HSLSC, entered into a separate agreement with the United States to resolve False Claims Act allegations arising from kickbacks paid from November 2010 to May 2012 to obtain subcontracts to transport military supplies needed by the U.S. military in Afghanistan.  Under the agreement, $1.5 million of the forfeited funds will be paid to resolve these claims.

            In addition to the civil forfeiture and False Claims Act resolutions, Shadman’s primary company, HSLSC, was criminally prosecuted by the U.S. Attorney’s Office in the Eastern District of North Carolina.  On Jan. 3, HSLSC pleaded guilty to a criminal information, No. 5:18-cr-492-1, charging the corporation with two counts of paying gratuities to two U.S. service members in Afghanistan, and one count of conspiracy to do the same, in order to influence the award of subcontracts to HSLSC and to ensure favorable treatment in the contracting process.  In this criminal case, HSLSC was sentenced to pay an $810,000 fine and forfeit $190,000.  Under the terms of the civil settlement agreement agreed to by the parties, those funds will be paid to the United States before the civil settlement is concluded.  As part of the criminal case, HSLSC also agreed to be placed on probation for five years, not to contest debarment, not to seek to engage in business within the United States, and its corporate officers agreed not to apply for a visa to travel to the United States. 

            “The corporate plea and the civil settlement filed today once again demonstrates that defrauding the government is a losing proposition,” said Director Robey of the U.S. Army CID’s Major Procurement Fraud Unit.  “Stealing U.S. tax dollars meant to support our soldier’s readiness is an egregious abuse of trust.  We, along with our law enforcement partners, will continue to protect the U.S. military from unscrupulous businesses.”

            “DCIS will aggressively investigate complex fraud and corruption that undermines the integrity of the Department of Defense (DoD) no matter where it happens or how long it takes,” said DCIS Special Agent in Charge Craig.  “We hope that this case demonstrates the commitment of DCIS and our law enforcement partners to use every available option to protect valuable DoD resources around the world and better enable our Warfighters to accomplish our critical global missions.”

            This civil forfeiture case was brought under the Kleptocracy Asset Recovery Initiative by a team of dedicated prosecutors in the Criminal Division’s Money Laundering and Asset Recovery Section (MLARS), working in partnership with federal law enforcement agencies to forfeit the proceeds of foreign official corruption and, where appropriate, to use those recovered assets to benefit the people harmed by these acts of corruption and abuse of office.  Individuals with information about possible proceeds of foreign corruption located in or laundered through the United States should contact federal law enforcement or send an email to kleptocracy@usdoj.gov.

            The investigation was conducted by SIGAR along with the FBI, DCIS, the U.S. Army Major Procurement Fraud Unit, and the U.S. Air Force Office of Special Investigations, and was prosecuted by Trial Attorneys Patricia Kessler and Steven Parker of MLARS International Unit, and Assistant U.S. Attorney Elizabeth Aloi of the District of Columbia (formerly of MLARS).  The HSLSC criminal case was prosecuted by Assistant U.S. Attorney Banu Rangarajan of the Eastern District of North Carolina.

            The civil False Claims Act imposes treble damages and penalties on those who knowingly submit false or fraudulent claims for government funds or property.  The False Claims Act investigation was handled by Trial Attorney Glenn Harris of the Department’s Civil Division, Commercial Litigation Branch, Fraud Section, and Assistant U.S. Attorneys John Truong and Heather Graham Oliver of the U.S. Attorney’s Office for the District of Columbia. 

https://lawprofessors.typepad.com/intfinlaw/2019/03/us-obtains-over-25-million-in-forfeited-funds-as-part-of-a-successful-effort-to-root-out-fraud-and-corruption-in-governmen.html

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