Kuwaiti Logistics Company to Pay $95 Million to Settle Military Procurement Fraud Claims

On Friday, May 26, 2017, Agility Public Warehousing Co. KSC (Agility) agreed to globally resolve criminal, civil and administrative cases arising from allegations that Agility overcharged the United States when performing contracts with the Department of Defense (DOD) to supply food for U.S. troops from 2003 through 2010. According to a Department of Justice press release, as part of the global settlement, Agility – a Kuwaiti company – has agreed to pay $95 million to resolve civil fraud claims, to forgo administrative claims against the United States seeking $249 million in additional payments under its military food contracts, and to plead guilty to a criminal misdemeanor offense for theft of government funds.  DOD’s Defense Logistics Agency (DLA) will also release a claim of $27.9 million against Agility and lift its suspension of Agility.  For the past seven years Agility has been suspended from federal contracting.

These civil claims and criminal charges originated when Kamal Mustafa Al-Sultan, a former vendor of Agility, filed a lawsuit under the qui tam provisions of the False Claims Act alleging Agility had defrauded the United States.  The qui tam, or whistleblower, provisions of the False Claims Act allow private individuals with knowledge of fraud against the United States to file a lawsuit on behalf of the government and if successful the whistleblower, known as a relator, can receive between 15-30 percent of the any funds recovered by the government.  The False Claims Act also allows the government to intervene in a whistleblower’s case and file its own complaint, as it did in this case.  Mr. Al-Sultan filed this case in the Northern District of Georgia and will receive $38.85 million as his share of the government’s recovery.

In the United States’ civil complaint, the government alleged that Agility overcharged the United States when performing contracts with the Department of Defense (DOD) to supply food for U.S. troops from 2003 through 2010.  Specifically, the United States alleged that Agility and another Kuwaiti company The Sultan Center Food Products Company (TSC) knowingly overcharged the Department of Defense for locally available fresh fruits and vegetables that Agility purchased through TSC, and falsely charged the full amount of TSC’s invoices despite agreeing that Agility would pay 10 percent less than the amount billed. The United States also alleged that Agility failed to disclose and pass through rebates and discounts it obtained from U.S.-based suppliers, as required by its contracts.

The criminal Information to which Agility has agreed to plead guilty alleges conduct that was part of the pending indictment. Specifically, it alleges that in connection with one of its contracts, Agility concealed consolidation fees that should have been paid by Agility, plus an additional markup to the company, in the product price billed to the United States. As a result of Agility’s price manipulation, the United States paid an inflated price for food. The criminal Information to which Agility is pleading guilty charges Agility with submitting one inflated invoice in an amount of less than $1,000, although the United States asserts that Agility engaged in this price manipulation whenever it used this consolidator.

Following Agility’s criminal Indictment on November 16, 2009, DLA suspended Agility and over 300 of its’ affiliated entities from government contracting.  As a result, Agility and its affiliates have forgone the opportunity to obtain billions of dollars in revenue associated with DOD contracts.  At one point U.S. military contracts accounted for around 40 percent of Agility’s revenue and also provided it with a 30 percent margin.  Since 2006, Agility has filed a number of administrative contract claims seeking payments of $249 million alleging that DLA owed Agility under various military contracts.  As part of the global settlement, Agility will release all contractual claims against DLA.

Frohsin Barger & Walthall would like to thank and congratulate the U.S. Attorney’s Office for the Northern District of Georgia, the Department of Justice Civil Division’s Commercial Litigation Branch, DCIS, U.S. Army’s Criminal Investigative Command’s MPFU, Defense Contract Audit Agency, and the FBI for investigating and prosecuting this complex matter as well as Mr. Al-Sultan and his attorneys for bringing this case to light.

Commenting on the case, officials stated:

“Companies that do business with the government must comply with all of their obligations, and if they overcharge for supplying our men and women in uniform who are bravely serving this nation, they must be held accountable for their actions.” said Director Frank Robey of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit (MPFU).

“The Department of Justice will hold accountable contractors that seek to profit unfairly at the expense of U.S. troops and taxpayers,” said Deputy Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division. “Those who expect to do business with the government must do so fairly and honestly, abiding by the contract terms to which they agreed.”

“In simple terms, defense contractor based fraud is theft directly from the American people,” said Special Agent in Charge David J. LeValley of FBI Atlanta Field Office. “The FBI is pleased with the persistence and determination of its investigators, law enforcement partners, and federal prosecutors who saw this investigation through to its successful conclusion.”

To learn more about government contractor fraud, click here

To read the full Department of Justice Press Release, click here