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19Apr/100

The Neverending Bradley Birkenfeld/UBS Saga

This post was written by Josh

If you're interested in whistleblowers, you probably know about the saga of Bradley Birkenfeld. Birkenfeld turned over information to the IRS that led to a deal between UBS and AG Eric Holder to relinquish the names of 4,500 potential tax cheats. UBS also paid a $780 million fine. For his services, Birkenfeld so far has been rewarded with a 40 month jail sentence, which, according to prosecutors, is appropriate because Birkenfeld withheld information regarding his role in the tax evasion schemes.

What seems particularly preposterous is the fact that of the few UBS clients convicted of tax evasion, few have received time behind bars, whereas Birkenfeld is serving more than three years. There may be a significant amount of reward money waiting for him when he gets out--possibly millions--but even that is uncertain. Hopefully the government will realize just how valuable the information Birkenfeld has provided really is. To put things in perspective, approximately 15,000 people presented themselves to the IRS last year, many paying back taxes and fines. The number of people who seek a soul-cleansing from the IRS' revenual font in a normal year? About 100.

The most recent development in the Birkenfeld saga is his revelation that some politicians kept off-shore accounts with UBS. According to Birkenfeld, UBS had an office in Washington D.C. referred to internally as the PEP office for "Politically Exposed People." One wonders: where is the outrage over this? Birkenfeld's revelations have been largely overshadowed by the Goldman Sachs debacle, but we definitely haven't heard the last from this high-octane UBS whistleblower.

Tagged as: government, IRS, whistleblower No Comments

15Apr/100

A Curious Company Called Agility

This post was written by Josh

Agility is one of those companies whose name gives you no clue as to what it actually does. It could be physical therapy or investments, but what Agility, which is actually a Kuwaiti logistics firm, seems to do very adeptly these days is getting itself in trouble with the U.S. government. On November 16, 2009, the company was indicted on multiple charges of conspiracy and fraud for allegedly overcharging the U.S. Department of Defense for food. Agility (formerly operating under the much more pedestrian and not-so-PR-friendly name Public Warehousing Corp.) is the top food supplier for U.S. troops in Iraq, and is accused milking the Army on $8.5 billion worth of contracts. A whistleblower, Kemal Mustafa, filed the initial case. Mustafa had excellent inside information--his company had originally partnered with Public Warehousing Corp. to get U.S. military contracts.

Now, the government has extended the indictment to two of Agility's subsidiaries: DGS Holdings and KSCc. The company has been doing extremely well financially up until now, so it remains to be seen how the extra indictments will affect things. On April 11th, Agility posted a 22 percent rise in fourth-quarter profit--evidence that its enormous military contracts are an extremely lucrative business, even if it involves vast overchargings for a couple of bananas or some Romaine.

Today's overpriced banana is the modern version of the $600 toilet seat--the modern military outsources even the most mundane details, not just procurement of equipment. Although the extensive use of contractors puts the military at a much higher risk of being subjected to fraud, this does not excuse any contractor who overcharges for goods and services. It's taxpayers who ultimately end up footing the bill.

UPDATE: As we were writing this post, it was announced that Agility has lost its contract to supply food to troops in Iraq! Agility stated on the Kuwaiti Stock Exchange website that another company had been appointed to take over its duties, but that Agility would continue on for six more months.

This dramatic turn of events was brought about by a whistleblower without whom Agility's fraud may never have come to light. The company could have gone on overcharging the military and taxpayers for many more years, but fortunately in sixth months we won't be buying any more overpriced Iceburg lettuce from this outfit.

Tagged as: corporate fraud, fraud, government, military, whistleblower No Comments

10Apr/100

Qui Tam in the Mines

This post was written by Josh

As far as we know, they aren't sending kids into the mines like they used to do in the heady days of 1908, when you had to start working basically as soon as you could walk. That doesn't mean that mining is any less dangerous today, however. Every year, there seems to be some type of mishap, usually involving fire, poisonous gas, being trapped hundreds of feet underground, or some combination thereof. What gets less attention, however, are the qui tam cases related to coal mining and other types of resource extraction.

Although it doesn't necessarily tug at the heartstrings the way stories of trapped miners do, fraud by by companies extracting coal and other natural resources from federal and Indian lands costs taxpayers millions of dollars in lost royalties. The typical situation is one in which a resource extractor removes more of a resource than it discloses to the government by falsifying records.

According to testimony given by Acting Inspector General for the Department of the Interior Mary L. Kendall before Congress regarding bill H.R. 3534, nearly $700 million has been recovered from 25 companies, much of it through qui tam cases. H.R. 3534, the Consolidated Land, Energy, and Aquatic Resources Act, is a bill that would "provide greater efficiencies, transparency, returns, and accountability in the administration of Federal mineral and energy resources by consolidating administration of various Federal energy minerals management and leasing programs into one entity to be known as the Office of Federal Energy and Minerals Leasing of the Department of the Interior."

A perfect example of a False Claims Act violation by a resource extractor met its apex in December 2009, when Chevron agreed to pay $45 million to the United States to resolve claims that it knowingly underpaid royalties for natural gas extracted from federal and Indian land. As one of the assistant attorneys general involved in the case observed, royalties are an important source of income for Native Americans, the federal government, and various states. When companies underpay royalties, they usually end up cheating everyone to some degree. It's important for whistleblowers to help ensure that resource extractors don't take advantage of the complex nature of their business. As the demand increases for certain natural resources, such as natural gas, there are sure to be more opportunities for fraud.