Bribery Network to Bloat War Costs Is Alleged

By James Glanz
The New York Times

Saturday 21 July 2007

Federal investigators have uncovered what they describe as a sweeping network of kickbacks, bribes and fraud involving at least eight employees and subcontractors of KBR, the former Halliburton subsidiary, in a scheme to inflate charges for flying freight into Iraq in support of the war, according to court papers unsealed yesterday.

The latest conviction in the cases related to the scheme came yesterday, when a former Houston-based executive for an air-freight carrier hired by KBR pleaded guilty in federal district court to dispensing bribes and then lying to federal investigators. The executive, Kevin Andre Smoot, 43, of The Woodlands, Tex., served as a managing director for Eagle Global Logistics Incorporated, a carrier that received a subcontract from KBR to ship the freight.

The guilty plea by Mr. Smoot is the second by an Eagle executive in the case. But the papers describing his plea indicate that investigators believe at least one more Eagle employee and five KBR employees, all so far unnamed, were also involved. Mr. Smoot alone admitted to delivering bribes, called gratuities in the legalistic language of the court papers, to the employees of KBR on some 90 occasions between 2002 and 2005.

At the core of the case is a contract that KBR, previously known as Kellogg, Brown & Root, won before the war to supply the American military with food, fuel, housing and other necessities. The value of the contract soared with the Iraq invasion, and has so far paid KBR some $20 billion.

The company hired Eagle in a subcontract to fulfill part of that mission, carrying military goods from Dubai, United Arab Emirates, to Baghdad. But the scheme by the Eagle executives began in November 2003 when a plane operated by a rival carrier, DHL, was struck by a missile and landed in Baghdad with its left wing in flames. The Eagle executives used that incident to charge a fraudulent "war-risk surcharge" of 50 cents for every kilogram (2.2 pounds) of freight on its own flights, the papers say.

Between November 2003 and July 2004, Eagle made 379 flights as part of the subcontract, charging some $13.3 million — an amount that included $1.1 million in overcharges. It is not clear whether KBR knew of the overcharging scheme, but the papers say that Mr. Smoot and an Eagle subordinate delivered nearly $34,000 in gratuities to KBR employees "to obtain or reward favorable treatment" in connection with the contract.

According to the papers, the gratuities included "meals, drinks, golf outings, tickets to rodeo events, baseball and football games and other entertainment items."

A spokeswoman for KBR, Heather L. Browne, said in a statement yesterday that the company "in no way condones this behavior."

"We are fully cooperating with the government's investigation of this matter and will continue to do so," Ms. Browne said.

The guilty plea by Mr. Smoot was announced yesterday by Rodger A. Heaton, the United States attorney for the Central District of Illinois, where the Army Field Support Command, which administers the logistics contract, is based in Rock Island.

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